SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended March 31, 1996 Commission File Number: 811-1056
CAPITAL SOUTHWEST CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1072796
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
12900 Preston Road, Suite 700, Dallas, Texas 75230
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(Address of principal executive offices including zip code)
(214) 233-8242
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(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 1, 1996 was $123,639,354, based on the last sale price of
such stock as quoted by Nasdaq on such date (officers, directors and 5%
shareholders are considered affiliates for purposes of this calculation).
The number of shares of common stock outstanding as of May 1, 1996 was
3,767,051:
Documents Incorporated by Reference Part of Form 10-K
(1) Annual Report to Shareholders for the Year Ended Parts I and II; and
March 31, 1996 Part IV, Item 14(a)(1)
and (2)
(2) Proxy Statement for Annual Meeting of Shareholders Part III
to be held July 15, 1996
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TABLE OF CONTENTS
Page
PART I
Item 1. Business......................................................1
Item 2. Properties....................................................1
Item 3. Legal Proceedings.............................................1
Item 4. Submission of Matters to a Vote of Security Holders...........1
Executive Officers of the Registrant..................................2
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...........................................2
Item 6. Selected Financial Data.......................................2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................2
Item 8. Financial Statements and Supplementary Data...................3
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure...........................3
PART III
Item 10.Directors and Executive Officers of the Registrant............3
Item 11.Executive Compensation........................................4
Item 12.Security Ownership of Certain Beneficial
Owners and Management.........................................4
Item 13.Certain Relationships and Related Transactions................4
PART IV
Item 14.Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ......................................4
Signatures ....................................................................6
Exhibit Index .................................................................7
<PAGE>
PART I
ITEM 1. BUSINESS
Capital Southwest Corporation (the "Company") was organized as a Texas
corporation on April 19, 1961. Until September 1969, the Company operated as a
licensee under the Small Business Investment Act of 1958. At that time, the
Company transferred to its wholly-owned subsidiary, Capital Southwest Venture
Corporation ("CSVC"), certain of its assets and its license as a small business
investment company ("SBIC"). CSVC is a closed-end, non-diversified investment
company of the management type. Prior to March 30, 1988, the Company was
registered as a closed-end, non-diversified investment company under the
Investment Company Act of 1940 (the "1940 Act"). On that date, the Company
elected to become a business development company subject to the provisions of
Sections 55 through 65 of the 1940 Act, as amended by the Small Business
Incentive Act of 1980.
The Company is a venture capital investment company whose objective is to
achieve capital appreciation through long-term investments in businesses
believed to have favorable growth potential. The Company participates in
start-up and early-stage financings, expansion financings and leveraged buyout
financings in a broad range of industry segments. The Company's portfolio is a
composite of investments in several companies in which the Company has major
interests as well as a number of developing companies and marketable securities
of established publicly-owned companies. The Company makes available significant
managerial assistance to the companies in which it invests and believes that
providing material assistance to such investee companies is critical to its
business development activities.
The twelve largest investments of the Company had a combined cost of
$40,271,590 and a value of $232,906,947, representing 90.6% of the value of the
Company's consolidated investment portfolio at March 31, 1996. For a narrative
description of the twelve largest investments, see "Twelve Largest Investments -
March 31, 1996" on pages 5 through 7 of the Company's Annual Report to
Shareholders for the Year Ended March 31, 1996 (the "1996 Annual Report") which
is herein incorporated by reference. Certain of the information presented on the
twelve largest investments has been obtained from the respective companies and,
in certain cases, from public filings of such companies. The financial
information presented on each of the respective companies is from such
companies' financial statements, which in some instances are unaudited.
The Company competes for attractive investment opportunities with venture
capital partnerships and corporations, venture capital affiliates of industrial
and financial companies, other SBICs and wealthy individuals.
The number of persons employed by the Company at March 31, 1996 was eight.
ITEM 2. PROPERTIES
The Company maintains its offices at 12900 Preston Road, Suite 700, Dallas,
Texas, 75230, where it rents approximately 3,200 square feet of office space
pursuant to a lease agreement expiring in February 1998. The Company believes
that its offices are adequate to meet its current and expected future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material pending legal proceedings to which it is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1996.
1
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EXECUTIVE OFFICERS OF THE REGISTRANT
The officers of the Company, together with the offices in the Company
presently held by them, their business experience during the last five years and
their ages are as follows:
D. Scott Collier, age 33, has served as Vice President of the Company
since April 1995 and was an investment associate with the Company from 1991
to 1995. He is a graduate of the University of Texas Graduate School of
Business, which he attended from 1989 to 1991 while he was also employed by
Austin Technology Incubator.
J. Bruce Duty, age 45, has served as Senior Vice President of the
Company since 1993, Vice President of the Company from 1982 to 1993,
Secretary of the Company from 1980 to 1993 and Treasurer of the Company
from 1980 to January 1990.
Patrick F. Hamner, age 40, has served as Vice President of the Company
since 1986 and was an investment associate with the Company from 1982 to
1986.
Gary L. Martin, age 49, has been a director of the Company since July
1988 and has served as Vice President of the Company since 1984. He
previously served as Vice President of the Company from 1978 to 1980. Since
1980, Mr. Martin has served as President of The Whitmore Manufacturing
Company, a wholly-owned subsidiary of the Company.
Tim Smith, age 35, has served as Vice President and Secretary of the
Company since 1993, Treasurer of the Company since January 1990 and was an
investment associate with the Company from July 1989 to January 1990.
William R. Thomas, age 67, has served as Chairman of the Board of
Directors of the Company since 1982 and President of the Company since
1980. In addition, he has been a director of the Company since 1972 and was
previously Senior Vice President of the Company from 1969 to 1980.
No family relationship exists between any of the above-listed officers, and
there are no arrangements or understandings between any of them and any other
person pursuant to which they were selected as an officer. All officers are
elected to hold office for one year and until their successors are elected and
qualify.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information set forth under the captions "Shareholder Information -
Shareholders, Market Prices and Dividends" on page 31 of the 1996 Annual Report
are herein incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data" on page 30 of the 1996 Annual Report
is herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Pages 27 through 29 of the Company's 1996 Annual Report are herein
incorporated by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 8 through 26 of the Company's 1996 Annual Report are herein
incorporated by reference. See also Item 14 of this Form 10-K - "Exhibits,
Financial Statement Schedules, and Reports on Form 8-K".
Selected Quarterly Financial Data (Unaudited)
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The following presents a summary of the unaudited quarterly consolidated
financial information for the years ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1996
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Net investment income $ 816 $ 633 $ 934 $ 472 $ 2,855
Net realized gain (loss) on investments - - 12,358 (1,184) 11,174
Net increase (decrease) in unrealized
appreciation of investments before
distributions 2,613 27,272 (2,180) 11,041 38,746
Net increase in net assets from operations
before distributions 3,429 27,905 11,112 10,329 52,775
Net increase in net assets from operations
before distributions per share .91 7.41 2.95 2.74 14.01
1995
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Net investment income $ 613 $ 655 $ 637 $ 542 $ 2,447
Net realized gain (loss) on investments 617 (115) (262) (98) 142
Net increase (decrease) in unrealized
appreciation of investments (4,184) 3,682 1,780 12,306 13,584
Net increase (decrease) in net
assets from operations (2,954) 4,222 2,155 12,750 16,173
Net increase (decrease) in net assets
from operations per share (.79) 1.13 .58 3.43 4.35
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Election of Directors" in the
Company's definitive Proxy Statement for Annual Meeting of Shareholders to be
held July 15, 1996, filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, on or about June 6, 1996 (the "1996 Proxy Statement") is
herein incorporated by reference. See also Part I of this Form 10-K - "Executive
Officers of the Registrant".
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ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Compensation of Directors and
Executive Officers" in the 1996 Proxy Statement is herein incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Stock Ownership of Certain
Beneficial Owners" and "Election of Directors" in the 1996 Proxy Statement is
herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no relationships or transactions within the meaning of this item
during the fiscal year ended March 31, 1996 or proposed for the fiscal year
ending March 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements included in pages 14 through 26 of the
Company's 1996 Annual Report are herein incorporated by reference:
(A) Consolidated Financial Statements of the Company and Subsidiary
Consolidated Statements of Financial Condition - March 31, 1996 and
1995
Consolidated Statements of Operations - Years Ended March 31, 1996,
1995 and 1994
Consolidated Statements of Changes in Net Assets - Years Ended March
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended March 31, 1996,
1995 and 1994
(B) Financial Statements of CSVC
Statement of Financial Condition - March 31, 1996
Statement of Operations - Year Ended March 31, 1996
Statements of Changes in Shareholder's Equity - Years ended March 31,
1996 and 1995
Statement of Cash Flows - Year Ended March 31, 1996
(C) Notes to Consolidated Financial Statements
(D) Selected Per Share Data and Ratios
(E) Independent Auditors' Report
4
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(a)(2) All schedules are omitted because they are not applicable or not
required, or the information is otherwise supplied.
(a)(3) See the Exhibit Index on page 7.
(b) The Company filed no reports on Form 8-K during the three months ended
March 31, 1996.
5
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SIGNATURES
Pursuant to the requirements of Section 13 or 13(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPITAL SOUTHWEST CORPORATION
By:/s/ William R. Thomas
(William R. Thomas, President
and Chairman of the Board)
Date: June 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ William R. Thomas President and Chairman June 26, 1996
(William R. Thomas) of the Board and Director
/s/ Gary L. Martin Director June 26, 1996
(Gary L. Martin)
/s/ Graeme W. Henderson Director June 26, 1996
(Graeme W. Henderson)
/s/ James M. Nolan Director June 26, 1996
(James M. Nolan)
/s/ John H. Wilson Director June 26, 1996
(John H. Wilson)
/s/ Tim Smith Vice President and June 26, 1996
(Tim Smith) Secretary-Treasurer
(Financial and Accounting Officer)
6
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EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated
herein by reference to a prior filing, in accordance with Rule 12b-32 under the
Securities Exchange Act of 1934. (Asterisk denotes exhibits filed with this
report.)
Exhibit No. Description
- ----------- -----------
3.1(a) Articles of Incorporation and Articles of Amendment to Articles of
Incorporation, dated June 25, 1969 (filed as Exhibit 1(a) and 1(b) to
Amendment No. 3 to Form N-2 for the fiscal year ended March 31, 1979).
3.1(b) Articles of Amendment to Articles of Incorporation, dated July 20,
1987 (filed as an exhibit to Form N-SAR for the six month period ended
September 30, 1987).
3.2 By-Laws of the Company, as amended (filed as Exhibit 2 to Amendment
No. 11 to Form N-2 for the fiscal year ended March 31, 1987).
4.1 Specimen of Common Stock certificate (filed as Exhibit 4 to Amendment
No. 3 to Form N-2 for the fiscal year ended March 31, 1979).
4.2 Subordinated debentures of CSVC guaranteed by the Small Business
Administration (filed as Exhibit 5 to Amendment No. 11 to Form N-2 for
the fiscal year ended March 31, 1987 and Exhibit 4.3 to Form 10-K for
the fiscal year ended March 31, 1993).
10.1 * The RectorSeal Corporation and Jet-Lube, Inc. Employee Stock
Ownership Plan as revised and restated effective April 1, 1989.
10.3 Retirement Plan for Employees of Capital Southwest Corporation and Its
Affiliates as amended and restated effective April 1, 1989 (filed as
Exhibit 10.3 to Form 10-K for the fiscal year ended March 31, 1995).
10.4 Capital Southwest Corporation and Its Affiliates Restoration of
Retirement Income Plan for certain highly-compensated superseded plan
participants effective April 1, 1993 (filed as Exhibit 10.4 to Form
10-K for the fiscal year ended March 31, 1995).
10.5 Capital Southwest Corporation Retirement Income Restoration Plan as
amended and restated effective April 1, 1989 (filed as Exhibit 10.5 to
Form 10-K for the fiscal year ended March 31, 1995).
10.6 Form of Indemnification Agreement which has been established with all
directors and executive officers of the Company (filed as Exhibit 10.9
to Form 8-K dated February 10, 1994).
10.7 Capital Southwest Corporation 1984 Incentive Stock Option Plan as
amended and restated as of April 20, 1987 (filed as Exhibit 10.10 to
Form 10-K for the fiscal year ended March 31, 1990).
7
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Exhibit No. Description
- ----------- -----------
13. * Annual Report to Shareholders for the fiscal year ended March 31,
1996.
21. List of subsidiaries of the Company (filed as Exhibit 22 to Form 10-K
for the fiscal year ended March 31, 1992).
23. * Independent Auditors' Consent.
27. * Financial Data Schedule.
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THE RECTORSEAL CORPORATION AND JET-LUBE, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(As Revised and Restated Effective April 1, 1989)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS........................................... 2
ARTICLE II ELIGIBILITY OF EMPLOYEES.............................. 10
ARTICLE III CONTRIBUTIONS, FUNDING POLICY
AND WITHDRAWALS................................... 11
ARTICLE IV ACCOUNTS AND VALUATION OF TRUST
FUND.............................................. 13
ARTICLE V LIMITATION ON ALLOCATIONS............................. 16
ARTICLE VI INDIVIDUAL ACCOUNTS................................... 25
ARTICLE VII RETIREMENT............................................ 25
ARTICLE VIII DEATH................................................. 26
ARTICLE IX DISABILITY............................................ 27
ARTICLE X TERMINATION BENEFITS.................................. 28
ARTICLE XI DISTRIBUTIONS......................................... 30
ARTICLE XII NOTICES............................................... 39
ARTICLE XIII AMENDMENT OR TERMINATION OF PLAN...................... 39
ARTICLE XIV COMMITTEE............................................. 42
ARTICLE XV MISCELLANEOUS......................................... 44
ARTICLE XVI ADOPTION BY AFFILIATED COMPANIES...................... 46
ARTICLE XVII THE TRUSTEE........................................... 47
ARTICLE XVIII INVESTMENTS........................................... 48
ARTICLE XIX TOP HEAVY PROVISIONS.................................. 49
<PAGE>
THE RECTORSEAL CORPORATION AND JET-LUBE, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(As Revised and Restated Effective April 1, 1989)
THIS AGREEMENT, executed this 31 day of January, 1996, and effective the
first day of April, 1989 unless specifically provided elsewhere in the
Agreement, by The RectorSeal Corporation, a Delaware corporation, having its
principal office in Houston, Texas (hereinafter referred to as the "Company").
W I T N E S S E T H:
WHEREAS, effective June 1, 1976, the Company established The RectorSeal
Corporation Employee Stock Ownership Plan (hereinafter referred to as the
"Plan"); and
WHEREAS, the Plan was subsequently amended from time to time and was then
amended and restated effective April 1, 1985, except for specific provisions
which were effective April 1, 1984, to bring the Plan into compliance with the
Tax Equity and Fiscal Responsibility Act of 1982, the Tax Reform Act of 1984 and
the Retirement Equity Act of 1984; and
WHEREAS, the Plan was subsequently amended by Amendment No. 1 effective,
with respect to specific provisions, on April 1, 1984 and April 1, 1985; and
WHEREAS, Jet-Lube, Inc., a Delaware corporation ("Jet Lube"), and an
Affiliated Company (herein defined), established the Jet- Lube, Inc. Employee
Stock Ownership Plan (the "Jet Lube Plan") effective June 1, 1976; and
WHEREAS, the Jet Lube Plan was subsequently amended from time to time prior
to April 1, 1984, was amended and restated effective April 1, 1985, except for
specific provisions which were effective April 1, 1984, to bring the Jet Lube
Plan into compliance with the Tax Equity and Fiscal Responsibility Act of 1982,
the Tax Reform Act of 1984 and the Retirement Equity Act of 1984, and, due to
the merger of the Jet Lube Plan with and into the Plan, was amended to comply
with (i) those provisions of the Tax Reform Act of 1986 that were technical
corrections to the Retirement Equity Act of 1984 and (ii) the temporary Treasury
Regulations issued with respect to those provisions in the Internal Revenue Code
of 1986 enacted by the Retirement Equity Act of 1984 or the subsequent technical
correction provisions thereto; and
WHEREAS, Jet Lube approved (i) the merger of the Jet Lube Plan, effective
as of April 1, 1989, with and into the Plan and (ii) the transfer of assets from
the Jet Lube Plan to the Plan as soon as practicable after the valuation of
accounts in the Jet Lube Plan at March 31, 1990; and
<PAGE>
WHEREAS, the Company now desires to amend and restate the Plan (i)
effective April 1, 1989, except for certain provisions for which another
effective date is subsequently provided otherwise in the terms of the Plan, to
bring the Plan into compliance with the Tax Reform Act of 1986 as well as all
other applicable laws, rules and regulations enacted or promulgated since the
prior plan restatement and (ii) effective April 1, 1994, to change the name of
the Plan to "The RectorSeal Corporation and Jet-Lube, Inc. Employee Stock
Ownership Plan."
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Unless by the context hereof a different meaning is clearly indicated,
whenever used in this Plan, the following words shall have the meanings
hereinafter set forth:
Sec. 1.1 Administrator for the purposes of ERISA means the Company; provided,
that the Company, by action of its governing body, may designate another
person or entity, including the Trustee, as Administrator of the Plan.
Sec. 1.2 Affiliated Company means the Company and any other entity which is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses [as defined in Section 414(b) or
(c) of the Code], any entity which along with the Company is included in an
affiliated service group as defined in Section 414(m) of the Code, and any
other entity which is required to be aggregated with the Company pursuant
to Section 414(o) of the Code.
Sec. 1.3 Allocation Date means the Anniversary Date and each additional date
designated by the Named Fiduciary on which allocations are made.
Sec. 1.4 Anniversary Date means the last day of each Year.
Sec. 1.5 Annual Compensation means the sum of (i) the amounts actually paid to
an Employee by the Employer for services rendered, as reported on the
Employee's Federal income tax withholding statement (Form W-2 or its
subsequent equivalent) for the Year, exclusive, however, of reimbursements
and other expense allowances, fringe benefits (cash and noncash), including
but not limited to automobile allowances, taxable group life insurance and
amounts that are paid to the Employee in cash in lieu of being contributed
on his behalf to the Plan or any other qualified defined contribution plan
maintained by the Employer, moving expenses, welfare benefits, and all
other extraordinary compensation, such as income attributable to phantom
stock plans; (ii) amounts applied to
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purchase benefits pursuant to a salary reduction agreement under a
cafeteria plan as defined in Section 125 of the Code sponsored by an
Employer and amounts deferred pursuant to a salary reduction agreement
under any other plan described in Section 401(k) of the Code sponsored by
an Employer; and (iii) for Years beginning prior to April 1, 1994, amounts
accrued in a Year but not paid until the following Year as a result of the
timing of pay periods or pay days or which is deemed to be "de minimus",
provided such amounts are paid during the first few weeks of the subsequent
Year. For (i) any Year (A) beginning after December 31, 1983 and before
January 1, 1989 in which the Plan is a top heavy plan as defined in Section
416(g) of the Code or (B) beginning after December 31, 1988 and before
January 1, 1994, only the first $200,000 of Annual Compensation shall be
taken into account [or, beginning April 1, 1988, such other amount as the
Secretary of the Treasury may prescribe at the same time and in the same
manner as provided under Section 415(d) of the Code for adjusting the
dollar limitation in effect under Section 415(b)(1)(A) of the Code] and
(ii) beginning after December 31, 1993, only the first $150,000 of Annual
Compensation shall be taken into account [or, beginning April 1, 1995, such
other amount as may be determined under Section 401(a)(17)(B) of the Code]
(hereinafter referred to as the "Compensation Limitation"). In determining
the Annual Compensation of each Participant, who is (i) a more than five
percent owner of an Employer or (ii) a highly compensated employee [within
the meaning of Section 414(q) of the Code] in the group consisting of the
ten highly compensated employees paid the greatest Annual Compensation
during the Year (without regard to this sentence), for purposes of applying
the Compensation Limitation for a Year after December 31, 1988, the spouse
of each such Participant and each of his lineal descendants who have not
attained age 19 before the close of the Year shall not be treated as a
separate Employee for that Year and the Annual Compensation of each such
family member shall be aggregated with the Annual Compensation of the
Participant as if it were paid to the Participant. If, as a result of the
application of the preceding sentence, the Compensation Limitation for a
Year is exceeded, then the Compensation Limitation shall be prorated among
the affected individuals in proportion to each such individual's Annual
Compensation as determined under this Section 1.5 prior to the application
of this limitation.
Sec. 1.6 Beneficiary means any person or fiduciary designated by a Participant
or Former Participant to receive benefits hereunder following the death of
such Participant or Former Participant. Each Participant and Former
Participant may, from time to time, select one or more Beneficiaries to
receive benefits pursuant to Section 8.1 in the event of the death of such
Participant or Former Participant. Such selection shall be made in writing
upon a form provided by the Named Fiduciary. The last such selection filed
with the Named Fiduciary shall control. If at the date of death the
Participant or Former Participant is married, the Beneficiary shall be the
surviving spouse unless the spouse has consented in writing to the
designation of some other Beneficiary, which designation may not be changed
without spousal consent unless
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<PAGE>
the voluntary consent of the spouse (i) expressly permits designations by
the Participant without any requirement of further consent by the spouse
and (ii) acknowledges that the spouse has the right to limit the consent to
a specific Beneficiary. Such written consent must acknowledge the effect of
such selection and such consent must be witnessed by a Plan representative
or a notary public. Spousal consent is not required if it is established to
the satisfaction of the Plan representative that the consent may not be
obtained (i) because the Participant has no spouse, (ii) because the spouse
cannot be located or (iii) because of such other circumstances as the
Secretary of Treasury may by regulations prescribe. Any consent by a spouse
(or establishment that the consent of the spouse may not be obtained) shall
be effective only with respect to that spouse. If a selection is not made
in compliance with these provisions or if such designated persons shall
have died, Beneficiary means the first of the following classes of
successive preference beneficiaries then surviving: the Participant's or
Former Participant's:
(a) surviving spouse,
(b) descendants, per stirpes,
(c) parents in equal shares,
(d) brothers and sisters in equal shares, and
(e) estate.
Sec. 1.7 Code means the Internal Revenue Code of 1986, as it may be amended from
time to time. Reference to a section of the Code shall include that section
and any comparable section of any future legislation that amends,
supplements or supersedes said section.
Sec. 1.8 Committee means the committee appointed under Article XIV to administer
the Plan.
Sec. 1.9 Company means The RectorSeal Corporation, a Delaware corporation, or
any successor thereto.
Sec. 1.10 Disability means physical or mental incapacity of a Participant which,
in the opinion of a physician approved by the Named Fiduciary, will
permanently prevent such Participant from performing any of the usual
duties of his employment.
Sec. 1.11 Early Retirement Date means the Anniversary Date of the Year
coinciding with or next following the later of the date a Participant
attains age 55 and has completed at least 10 Years of Service (Vesting),
provided the Participant has elected at least 60 days prior to such
Anniversary Date to terminate his employment with all Affiliated Companies.
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Sec. 1.12 Employee means any individual in the employ of an Employer who is
included on the Federal Insurance Contribution Act rolls of an Employer,
and excludes any Leased Employee.
Sec. 1.13 Employer means the Company and any other Affiliated Company, with
respect to its Employees, provided such Affiliated Company is designated by
the governing body of the Company as an Employer under the Plan and whose
designation as such has become effective and has continued in effect. The
designation shall become effective only when it shall have been accepted by
the governing body of the Employer and shall be effective for the Year
determined by the governing body of the Company and the Employer. An
Employer may revoke its acceptance of such designation at anytime, but
until such acceptance has been revoked, all of the provisions of the Plan
and amendments thereto shall apply to the Employees of the Employer. In the
event the designation of the Employer as such is revoked by the governing
body of the Employer, this will not be deemed a termination of the Plan.
Sec. 1.14 Entry Date means the first day of the Year.
Sec. 1.15 ERISA means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time, and applicable regulations promulgated
thereunder.
Sec. 1.16 Five-Year Break in Service means any five consecutive Years during
each of which the Employee or Participant performs for an Affiliated
Company 500 or fewer Hours of Service.
Sec. 1.17 Former Participant means any individual who has been a Participant in
the Plan (i) who is no longer in the employ of an Affiliated Company and
who has not yet received the entire benefit to which he is entitled under
the Plan, or (ii) who is still in the employ of an Affiliated Company and
who has an interest in the Plan but who is not eligible for Employer
contributions and forfeitures.
Sec. 1.18 Hours of Service means hours for which the Employee or Participant is
either directly or indirectly paid, or entitled to payment, by an
Affiliated Company. Further, the Employee or Participant shall be credited
with an Hour of Service for each hour for which back pay, irrespective of
mitigation of damages, has been awarded or agreed to by an Affiliated
Company. These Hours of Service shall be credited to the Employee for the
computation period or periods to which the award or agreement pertains
rather than the computation period in which the award, agreement or payment
is made. Hours of Service for periods during which no duties are performed
shall be calculated and credited pursuant to Section 2530.200b-2(b) and (c)
of the Department of Labor regulations which are incorporated herein by
reference. No more than 501 Hours of Service shall be credited under the
preceding sentence during any computation period. An Employee on a
non-hourly payroll whose Annual Compensation is not determined on the basis
of certain amounts for each hour worked shall be credited with 45 Hours of
Service for each week during which he would
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otherwise have at least one Hour of Service, adjusted pro rata on the basis
of 10 hours per day when employment or the Year begins on other than a
Monday or ends on other than a Friday. In addition, solely for the purpose
of determining a One-Year Break in Service and a Five-Year Break in
Service, the Plan shall credit the Participant with the Hours of Service
which otherwise would normally have been credited to such individual during
the computation period in which an absence from the service of an
Affiliated Company occurs for any period by reason of (i) pregnancy of the
individual, (ii) birth of a child of the individual, (iii) placement of a
child with the individual in connection with the adoption of such child by
such individual, or (iv) for purposes of caring for such child for a period
beginning immediately following such birth or placement; provided, however,
if the Participant has credit for more than 500 Hours of Service without
the application of this sentence in the computation period in which the
absence from the service of an Affiliated Company occurs for the reasons
specified in this sentence, the Plan shall credit the Participant with such
Hours of Service in the following computation period. The Plan shall not
credit any Participant with any Hours of Service under the preceding
sentence unless such Participant timely furnishes the Administrator
information establishing (i) that the absence from the service of an
Affiliated Company was for one or more reasons specified in the preceding
sentence and (ii) the number of days for which there was an absence. Solely
for the purpose of determining a One-Year Break in Service and a Five-Year
Break in Service, the Plan shall credit each Participant with Hours of
Service for each hour in any customary period of work, during which the
Participant is on an unpaid leave of absence granted as such by an
Affiliated Company in accordance with applicable law and uniformly
administered policy. Persons on an unpaid military leave shall receive
Hours of Service credit for the period that their employment rights are
protected by law, to the extent required by law, provided the Employee
returns to the active service of an Affiliated Company within 90 days after
discharge from service in such armed forces, or within such longer period
of time as may be fixed by law for the protection of his reemployment
rights. Should an Employee fail to return to the active employment of an
Affiliated Company within the time specified in a written leave of absence,
or after such authorized vacation, or after such period of military
service, as appropriate, his service will be deemed terminated as of the
end of such permitted period of absence. Service with an Affiliated Company
or a predecessor thereto prior to the date it became an Affiliated Company
may be counted for the purposes of eligibility and vesting to the extent
approved by the Named Fiduciary.
Sec. 1.19 Individual Account means an account or record to be maintained by the
Committee showing the amount of the Trust Fund credited to each
Participant, each Former Participant and each Beneficiary and shall include
the Other Investments Account and Parent Company Stock Account.
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Sec. 1.20 Key Employee means, as of any Determination Date [as defined in
Section 19.4(b)], any Employee or former Employee (or Beneficiary of such
Employee) who, at any time during the Year which includes the Determination
Date, or during the preceding four Years, is:
(a) an officer of any Employer having Annual Compensation greater than 50%
of the amount in effect under Section 415(b)(1)(A) of the Code for any
such Year;
(b) one of the ten Employees having Annual Compensation from any Employer
of more than the dollar limitation in effect under Section
415(c)(1)(A) of the Code and owning the largest interests in such
Employer;
(c) a more than five percent owner of any Employer; or
(d) a more than one percent owner of any Employer having Annual
Compensation from all Employers of more than $150,000.
For purposes of this Section 1.20, Annual Compensation shall mean annual
compensation as defined in Section 415(c)(3) of the Code, but including
amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludable from the Participant's gross income under
Sections 125, 402(a)(8), 402(h) or 403(b) of the Code. For purposes of
subsection (a) of this Section, no more than 50 Employees (or, if lesser,
the greater of three or ten percent of the Employees) shall be treated as
officers. For purposes of subsection (b) of this Section, if two Employees
have the same interest in an Employer, the Employee having the greater
Annual Compensation shall be treated as having the larger interest. The
constructive ownership rules of Section 318 of the Code (or the principles
of that section, in the case of an unincorporated Employer) will apply to
determine ownership in each Employer.
Sec 1.21 Leased Employee means an individual who is not in the employ of an
Employer and who, pursuant to a leasing agreement between an Employer and
any other person ("leasing organization"), has performed services for an
Employer [or for an Employer and any other person related to an Employer
within the meaning of Section 144(a)(3) of the Code] on a substantially
full-time basis for at least one year and who performs services of a type
historically performed by employees in the Employer's business field.
Leased Employee shall also include any individual who is deemed to be an
employee of an Employer under Section 414(o) of the Code. Notwithstanding
the preceding sentence, if individuals described in the preceding sentence
constitute less than 20% of an Employer's non-highly compensated work force
within the meaning of Section 414(n)(5)(C)(ii) of the Code, the Plan shall
not treat an individual as a Leased Employee if the leasing organization
covers the individual in a money purchase pension plan providing immediate
participation, full and immediate vesting and a non-integrated contribution
formula equal to at least ten percent of the
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individual's annual compensation [as defined in Section 415(c)(3) of the
Code, but including amounts contributed by an Employer pursuant to a salary
reduction agreement which are excludable from the individual's gross income
under Sections 125, 402(a)(8), 402(h) or 403(b) of the Code]. If any Leased
Employee shall be treated as an Employee of an Employer, however,
contributions or benefits provided by the leasing organization which are
attributable to services of the Leased Employee performed for an Employer
shall be treated as provided by the Employer.
Sec. 1.22 Named Fiduciary means the Company except to the extent the Company has
delegated specific functions to the Committee, if any, appointed by the
Company pursuant to Article XIV. If no Committee is appointed, the Trustee
will perform the functions of the Committee.
Sec. 1.23 Non-Key Employee means any Employee who is not a Key Employee.
Sec. 1.24 Normal Retirement Date means a Participant's or Former Participant's
65th birthday.
Sec. 1.25 One-Year Break in Service means any Year during which the Employee or
Participant performs for an Affiliated Company 500 or fewer Hours of
Service.
Sec. 1.26 Other Investments Account means the portion of the Individual Account
maintained by the Committee for each Participant showing the monetary value
of the Participant's individual interest in the Trust Fund attributable to
Employer contributions and forfeitures in cash under this Plan which have
not been invested in Parent Company Stock and are to be invested in other
assets; it shall be credited with the net income (or debited with the loss)
of the Trust Fund attributable to investments in the Other Investments
Account.
Sec. 1.27 Parent Company Stock means shares of any class of stock, preferred or
common, which are issued by Capital Southwest Corporation, a Texas
corporation, or any other qualifying employer security of Capital Southwest
Corporation, as defined in ERISA. The shares of Parent Company Stock
currently held by the Plan are regularly traded on the Nasdaq National
Market.
Sec. 1.28 Parent Company Stock Account means the portion of the Individual
Account of a Participant maintained by the Committee to which is credited
shares (including fractional shares) of Parent Company Stock which are
attributable to Employer contributions and forfeitures under the Plan.
Sec. 1.29 Participant means an Employee who has met the eligibility requirements
of the Plan as provided in Article II hereof and who has begun
participating in the Plan.
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Sec. 1.30 Plan means the plan embodied herein, as the same may be amended from
time to time, and shall be known as "The RectorSeal Corporation and
Jet-Lube, Inc. Employee Stock Ownership Plan."
Sec. 1.31 Trust Agreement means the trust agreement entered into between the
Company and the Trustee as of June 1, 1976 to carry out the purposes of the
Plan and under which the Trust Fund is maintained, provided that if such
agreement be amended or supplemented, Trust Agreement, as of a particular
date, shall mean such agreement, as amended and supplemented and in force
on such date.
Sec. 1.32 Trust Fund means all assets of whatsoever kind and nature from time to
time held by the Trustee pursuant to the Trust Agreement without
distinction as to income or principal.
Sec. 1.33 Trustee means any institution or individuals designated as Trustee or
Trustees by the Board of Directors of the Company and any successor Trustee
or Trustees chosen by such Board.
Sec. 1.34 Year means the 12-consecutive month period from April 1 of each year
to the next following March 31.
Sec. 1.35 Year of Service (Participation) means the 12- consecutive month period
commencing with the employment commencement date of an Employee by an
Affiliated Company, which is the date the Employee first performs an Hour
of Service for an Affiliated Company, during which the Employee performs at
least 1,000 Hours of Service for an Affiliated Company. If an Employee does
not perform 1,000 Hours of Service in the 12-month period beginning with
his employment commencement date, Year of Service (Participation) means the
Year commencing with the Year immediately following his employment
commencement date during which the Employee performs at least 1,000 Hours
of Service for an Affiliated Company.
Sec. 1.36 Year of Service (Vesting) means any Year during which the Employee
performs at least 1,000 Hours of Service for an Affiliated Company, subject
to the following:
(a) if an Employee has a One-Year Break in Service, Years of Service
(Vesting) before such break shall not be taken into account until he
has completed a Year of Service (Vesting) after his return to
employment; and
(b) if an Employee has a Five-Year Break in Service, Years of Service
(Vesting) after such break shall not be taken into account for the
purposes of determining the nonforfeitable percentage of his accrued
benefit derived from Employer contributions which accrued before such
break.
Sec. 1.37 Gender and Number. Except as otherwise indicated by the context, any
masculine terminology used herein also includes the feminine and neuter,
and vice versa, and the definition of any term herein in a singular shall
also include the plural, and vice versa.
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ARTICLE II
ELIGIBILITY OF EMPLOYEES
Sec. 2.1 Eligibility. Each eligible Employee shall be deemed to have become a
Participant (unless he elects otherwise pursuant to Section 2.2) as of the
Entry Date which falls within the Employee's completion of one Year of
Service (Participation).
Sec. 2.2 Election Not to Participate. An Employee eligible to participate or
participating in the Plan may elect not to participate (or elect to
withdraw from the Plan if then participating) for a given Year, provided
that written notice of such election is given to the Committee in
satisfactory form before the end of the Year in question. Upon receipt by
the Committee of such notice, the Participant shall become a Former
Participant retroactively to the beginning of the particular Year. Such
election shall remain in effect unless and until the Employee ceases to be
such or elects to participate again. An Employee eligible to participate in
the Plan who has elected not to participate (or elected to withdraw) may
elect to participate in any Year thereafter by giving written notice in
satisfactory form to the Committee. Such election shall be effective
immediately, and the Employee shall become an active Participant as of the
date of receipt of such election by the Committee or such later date as may
be specified in the notice.
Sec. 2.3 Eligibility upon Reemployment. Notwithstanding Section 2.1, each
Employee who completes a Year of Service (Participation) in either his
first 12 months of employment or a Year, as required in Section 1.35, but
is not employed at the expiration of such 12-month period or such Year,
shall become a Participant immediately upon his return to the status of
Employee, subject to Section 2.6. An Employee who completes 1,000 Hours of
Service in the 12-month period or the Year while employed by an Affiliated
Company which is not an Employer shall become a Participant as of the Entry
Date preceding the date on which he becomes an Employee of an Employer.
Sec. 2.4 Reemployment of Participant. If the employment of a Participant is
terminated for any reason and he subsequently is reemployed by an Employer,
he shall be eligible to become a Participant (unless he elects otherwise
pursuant to Section 2.2) on the date he resumes employment with an
Employer.
Sec. 2.5 Exclusion of Employees Covered by Collective Bargaining.
Notwithstanding Section 2.1, an Employee covered by a collective bargaining
agreement between the Employer and a collective bargaining representative
certified under the Labor Management Relations Act who is otherwise
eligible to become a
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Participant under this Article shall be excluded if retirement benefits
were the subject of good faith bargaining between the Employee's
representative and the Employer and if the agreement does not require the
Employer to include such Employee in this Plan. An Employee who is a
Participant in this Plan when he is excluded under the provisions of this
Section 2.5 shall cease active participation in this Plan on the effective
date of that collective bargaining agreement and shall not participate in
Employer contributions while a member of the ineligible class but shall not
be considered to have terminated employment.
Sec. 2.6 Eligibility Upon Entry or Reentry into Eligible Class of Employees. In
the event a Participant is excluded because he is no longer a member of an
eligible class of Employees as specified in this Article II, such Employee
shall participate as of the Entry Date preceding the date of his return to
an eligible class of Employees. In the event that an Employee who is not a
Former Participant in the Plan becomes a member of the eligible class, such
Employee shall participate as of the Entry Date preceding the date of his
becoming an eligible class member if such Employee has satisfied the
eligibility requirements of Section 2.1 and would have previously become a
Participant had he been in the eligible class.
ARTICLE III
CONTRIBUTIONS, FUNDING POLICY AND WITHDRAWALS
Sec. 3.1 Contributions of the Employer. The governing body of each Employer, in
its discretion, shall determine the amount of, and cause to be made, its
contribution to the Plan. Each Employer's liability for the amount of its
contribution will be established by its governing body, and other actions
taken, within the time required by law so as to permit the contributions
for a particular Year to be deductible for Federal income tax purposes for
the corresponding taxable year, and the amount of such contribution will be
communicated to Participants as soon as practicable after the amount
thereof has been established.
Sec. 3.2 Form of Employer Contributions. The Employer contribution by each
Employer may be paid in cash or in securities, other property, or shares
having an equivalent value, or any combination thereof, as the governing
body of the Employer may determine. To the extent that the Trust Fund has
cash obligations payable in one year from the date the Employer
contribution is due, such Employer contribution shall be paid in cash in an
amount determined by the Employer or the Committee.
Sec. 3.3 Time of Contributions. Contributions made by an Employer pursuant to
Section 3.1 may be made at any time and from time to time, except that the
total contribution for any Year shall be paid in full not later than the
time prescribed by law to enable the Employer to obtain a deduction
therefor on its federal income
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tax return for said Year. Contributions made after the Anniversary Date of
the Year but within the time for filing an Employer's federal income tax
return (including extensions thereof) shall be deemed made as of the
Anniversary Date of that Year if so directed by the Employer, except such
contributions shall not share in increases, decreases, or income to the
Trust Fund prior to the date actually made. Notwithstanding the foregoing,
upon an Employer's request, a contribution which was made upon a mistake of
fact or conditioned upon initial qualification of the Plan (application for
which is made by the time prescribed by law for filing the Employer's tax
return for the taxable year in which the Plan is adopted, or such later
date as the Secretary of the Treasury may prescribe) or upon deductibility
of the contribution shall be returned to the Employer within one year after
payment of the contribution, denial of the qualification, or disallowance
of the deduction (to the extent disallowed), as the case may be; provided,
however, the amount returned to an Employer due to mistake of fact or
denial of deductibility shall not be increased by any earnings thereon and
shall be reduced by any losses attributable to such amount.
Sec. 3.4 Limit on Employer Contributions. Notwithstanding the foregoing
provisions of this Article III, the contribution of an Employer for any
Year shall in no event exceed an amount which will, under the law then in
effect, be deductible by the Employer in computing its federal taxes for
the fiscal year of the Employer in which that Year ends.
Sec. 3.5 Withdrawal of Contributions. Except as provided in this Section, no
amounts may be withdrawn by a Participant from his Individual Account until
the Participant's employment with all Employers has terminated. In the
event of financial hardship, a Participant or Former Participant may, with
the consent of the Committee, withdraw such portion of his Individual
Account as the Committee may approve; provided, however, that no amount in
excess of the vested portion of his Individual Account may be withdrawn
from such Individual Account. A request for withdrawal under this Section
3.5 shall be made in writing to the Committee, and shall set forth the
particular circumstances constituting the financial hardship and the amount
requested to be withdrawn. The term "financial hardship" shall mean acute
financial necessity resulting from illness or death of members of the
family, education of children and casualty losses not covered by insurance.
The determination by the Committee as to the existence of financial
hardship and the amount permitted to be withdrawn shall be conclusive but
shall be made on a consistent and nondiscriminatory basis. All amounts not
actually withdrawn shall remain credited to the Individual Account of the
Participant or Former Participant. For the purposes of allocating
appreciation, depreciation, income, expense, gain and loss of the Trust
Fund, any withdrawals shall be subtracted from the Individual Account
balance as of the beginning of the Year in which the withdrawal is made.
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ARTICLE IV
ACCOUNTS AND VALUATION OF TRUST FUND
Sec. 4.1 Participants' Individual Accounts. The assets of the Trust Fund shall
constitute a single fund in which each Participant and Former Participant
shall have his proportionate interest as provided in this Plan. The
Committee shall maintain, or cause to be maintained, with respect to each
Employer, an Individual Account for each Participant or Former Participant
which shall reflect the credits and charges allocable thereto in accordance
with the Plan. The Committee shall maintain, or cause to be maintained,
records which will adequately disclose at all times the state of the Trust
Fund and of each separate interest therein. The books, forms and methods of
accounting shall be entirely in the hands of and subject to the supervision
of the Committee.
Sec. 4.2 Valuation of the Trust Fund and of the Interest of Each Participant.
Within a reasonable time after each Allocation Date, the Committee shall
have the Trustee prepare a statement of the condition of the Trust Fund,
setting forth all investments, receipts and disbursements, and other
transactions effected by it during the applicable period, and showing all
the assets of the Trust Fund and the cost and fair market value thereof.
This statement shall be delivered to the Committee. At least annually, the
Committee shall cause to be prepared, and shall deliver to each Participant
or Former Participant, a report disclosing the status of his Individual
Account in the Trust Fund as of the applicable Allocation Date.
For purposes of determining the market value of securities held by the
Trustee, such securities shall be valued as of the close of business on the
Allocation Date or, if securities shall not have been traded and reported
on a national securities exchange or in the over-the-counter market on such
date, then at the last bid price as of the close of business on the
Allocation Date.
Notwithstanding any other provision of this Section 4.2, if the
Trustee shall determine that the Trust Fund assets consist in whole or in
part of property not traded freely on a recognized market, including but
not limited to Parent Company Stock, or that information necessary to
ascertain the fair market value thereof is not readily available to the
Trustee, the Trustee shall request the Committee to instruct the Trustee as
to the value of such property for all purposes under the Plan, and the
Committee shall comply with such request. The Committee may engage a
competent appraiser to assist it in this process. The value placed upon
such property by the Committee in its instructions to the Trustee shall be
conclusive and binding upon the Trustee subject to the fiduciary provisions
of ERISA. If the Committee shall fail or refuse to instruct the Trustee as
to the value of such property within a reasonable time after receipt of the
Trustee's request to do so, the Trustee may engage a competent appraiser to
fix the fair market
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value of such property for all purposes hereunder. The determination of any
duly retained appraiser as to the fair market value of such property shall
be the value reported hereunder, and neither the Committee nor the Trustee
shall have any liability in connection therewith, subject to the fiduciary
provisions of ERISA. The reasonable fees and expenses incurred for any such
appraisal shall be deemed an expense of the Trustee and paid as provided in
Section 15.8.
The determination of the fair market value of the assets of the Trust
Fund and the Committee's charges or credits to the Individual Accounts with
respect to Participants or Former Participants shall be final and
conclusive on all persons ever interested hereunder, subject to Section
11.5 hereof.
Sec. 4.3 Allocations to Individual Accounts. In order that each Participant's
interest as provided in this Plan may be determined, the Individual Account
of each Participant [or Former Participant, for purposes of Sec.
4.3(c)(iii)] shall be adjusted as follows:
(a) The Parent Company Stock Account of each Participant will be credited
at least once each Year with his allocable share of (i) Parent Company
Stock purchased and paid for by the Trust Fund from contributions or
out of his Other Investments Account or contributed in kind by his
Employer, (ii) forfeitures of Parent Company Stock which are
attributable to his Employer and (iii) stock dividends of Parent
Company Stock on Parent Company Stock held in his Parent Company Stock
Account or acquired in exchange for other assets not yet allocated.
(b) The Other Investments Account of each Participant will be credited
with his remaining allocable share of contributions and forfeitures
not represented by Parent Company Stock which are attributable to his
Employer and with cash dividends on Parent Company Stock in his Parent
Company Stock Account; it will also be credited (or debited) with his
share of the net income (or loss) of the Trust Fund attributable to
it. Each Participant's Other Investments Account may also be debited
for any purchases of Parent Company Stock and the Parent Company Stock
Account shall then be credited.
(c) The allocations will be made as follows:
(i) Employer Contributions and Other Items. Employer contributions
and Parent Company Stock attributable thereto will be allocated
as of each Anniversary Date among the Individual Accounts of
Participants who are Employees of each Employer at the end of the
Year and, for any Year in which the Plan is not a top heavy plan
as defined in Section 416(g) of the Code, who completed at least
1,000 Hours of Service during the Year, and to the Individual
Accounts of Former Participants whose employment was terminated
by reason of death, Disability
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or retirement under Article VII during the Year, in the ratio in
which the Annual Compensation of each bears to the aggregate
Annual Compensation of all.
(ii) Forfeitures. Forfeitures during a Year attributable to the former
Participants of each Employer, subject to Section 10.5, shall be
allocated as of the Anniversary Date in such Year among the
Individual Accounts of the remaining Participants and Former
Participants employed by the same Employer in the same proportion
that the Employer contributions are (or would be) allocated for
such Year.
(iii)Net Income (or Loss) of the Trust Fund. The net income (or loss)
of the Trust Fund will be determined as of each Anniversary Date,
or more frequently if the Trustee or the Committee so desires.
Except as provided herein with respect to certain dividends and
tax refunds, the net income (or loss) of the Trust Fund which is
attributable to assets held in a Participant's and Former
Participant's Other Investments Account shall be allocated to his
Other Investments Account in the ratio which the balance of his
Other Investments Account on the preceding Anniversary Date bears
to the sum of such balances as of the preceding Anniversary Date
for all Participants and Former Participants in the Plan on the
subsequent Anniversary Date. Dividends (excluding dividends of
Parent Company Stock) on Parent Company Stock and tax refunds
with respect to Parent Company Stock shall be allocated to the
Other Investments Account of each Participant or Former
Participant in the ratio that the number of shares of Parent
Company Stock held in that Participant's or Former Participant's
Parent Company Stock Account bears to the total number of shares
of Parent Company Stock held in the Parent Company Stock Accounts
of all Participants and Former Participants. Likewise, dividends
declared on any other security held by the Trust Fund shall be
allocated to the Other Investments Account of each Participant or
Former Participant in the ratio that the number of shares of that
security to which the dividend relates held in that Participant's
or Former Participant's Other Investments Account bears to the
total number of shares of that security held in the Other
Investments Accounts of all Participants and Former Participants.
The net income (or loss) includes the increase (or decrease) in
the fair market value of assets of the Trust Fund (other than
Parent Company Stock), interest, dividends, tax refunds, other
income and expenses since the preceding Anniversary Date.
(d) Equitable Allocation. The Committee may establish accounting
procedures for the purpose of making the allocations, valuations and
adjustments to Individual Accounts of Participants and Former
Participants provided for in this Article IV. Should the Committee
determine that the strict
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application of its accounting procedures will not result in an
equitable and nondiscriminatory allocation among the Other Investments
Accounts and Parent Company Stock Accounts of Participants and Former
Participants, it may modify its procedures for the purpose of
achieving an equitable and nondiscriminatory allocation in accordance
with the general concepts of the Plan and the provisions of this
Article IV; provided, however, that such adjustments to achieve equity
shall not reduce the vested portion of a Participant or Former
Participant and shall be consistent with the provisions of the Code.
(e) Computations. All of the computations required to be made under the
provisions of this Article IV shall be made in accordance with
generally accepted accounting principles and such computations, when
made, shall be conclusive with respect thereto and shall be binding
upon all the Participants and Former Participants and all other
persons ever having an interest in the Trust Fund, subject to the
provisions of Section 8.1.
(f) Dividends After Anniversary Date. If a Participant or Former
Participant is to receive a distribution or withdrawal from the Plan
based on the immediately preceding Anniversary Date and prior to the
date of such distribution or withdrawal a dividend is declared on any
security held by that Participant's or Former Participant's Individual
Account, the amount of the distribution to such Participant or Former
Participant shall be adjusted to reflect such dividend.
Sec. 4.4 Included Individual Accounts. For the purposes of this Article IV,
references to the Individual Accounts of Participants shall include the
Individual Accounts of those who die, become disabled, retire, or terminate
their services during the Year in question.
Sec. 4.5 Time When Contributions are Allocated. If directed by the Committee, an
Employer contribution for a Year may be provisionally allocated as of any
Allocation Date prior to the Anniversary Date, but such allocation shall be
subject to adjustment as of the Anniversary Date.
ARTICLE V
LIMITATION ON ALLOCATIONS
Sec. 5.1 Limitation on Allocations. Notwithstanding any other provision of the
Plan, the following provisions shall be applicable to the Plan effective
April 1, 1987:
(a) If this Plan is the only plan maintained by an Employer which covers
the class of Employees eligible to participate hereunder and the
Participant does not participate in and has
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never participated in a Related Plan or a welfare benefit fund, as
defined in Section 419(e) of the Code, maintained by the Employer, or
an individual medical account, as defined in Section 415(1)(2) of the
Code, maintained by the Employer, which provides an Annual Addition as
defined in Section 5.1(o)(i), the Annual Additions which may be
allocated under this Plan to a Participant's Individual Account for a
Limitation Year shall not exceed the lesser of (i) the Maximum
Permissible Amount or (ii) any other limitation contained in this
Plan.
(b) Prior to the determination of the Participant's actual Annual
Compensation for a Limitation Year, the Maximum Permissible Amount may
be determined on the basis of the Participant's estimated Annual
Compensation for such Limitation Year. Such estimated Annual
Compensation shall be determined on a reasonable basis and shall be
uniformly determined for all Participants similarly situated. Any
Employer contributions (including allocation of forfeitures) based on
estimated Annual Compensation shall be reduced by any Excess Amounts
carried over from prior Years.
(c) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation
Year shall be determined on the basis of the Participant's actual
Annual Compensation for such Limitation Year.
(d) If there is an Excess Amount with respect to a Participant for the
Limitation Year, such Excess Amount shall be disposed of as follows:
(i) the Excess Amount attributable to the portion of the Employer
contribution made pursuant to Section 3.1 which has been
allocated to a Participant under the Plan for a Year but which
cannot be allocated to his Individual Account because of the
limitation imposed by this Section, shall, subject to the
limitations of Section 5.1(a), be allocated and reallocated in
the current Limitation Year to Individual Accounts of the other
Participants entitled to share in the Employer contributions and
forfeitures for that Year in accordance with Section 4.3. Any
Excess Amount that cannot be allocated will be held unallocated
in a suspense account. All amounts in the suspense account must
be allocated and reallocated to the Participants' Individual
Accounts, subject to the limitations of Section 5.1(a), in
succeeding Limitation Years before any Employer contributions
which constitute Annual Additions may be made to the Plan; and
(ii) in the event of termination of the Plan, the suspense account
shall revert to the Employer to the extent it may not then be
allocated to any Participant's Individual Account.
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(e) Notwithstanding any other provision of this Section 5.1, an Employer
shall not contribute any amount that would cause an allocation to the
suspense account as of the date the contribution is allocated. If the
contribution is made prior to the date as of which it is to be
allocated, then such contribution shall not exceed an amount that
would cause an allocation to the suspense account if the date of the
contribution were an Allocation Date.
(f) If an Employer maintains, in addition to this Plan, (i) a Related Plan
which covers the same class of Employees eligible to participate
hereunder, (ii) a welfare benefit fund, as defined in Section 419(e)
of the Code, or (iii) an individual medical account, as defined in
Section 415(l)(2) of the Code, which provides an Annual Addition as
defined in Section 5.1(o)(i), the Annual Additions which may be
allocated under this Plan to a Participant's Individual Account for a
Limitation Year shall not exceed the lesser of:
(A) the Maximum Permissible Amount, reduced by the sum of any Annual
Additions allocated to the Participant's accounts for the same
Limitation Year under this Plan and such other Related Plan and
the welfare plans described in clauses (ii) and (iii) above; or
(B) any other limitation contained in this Plan.
(g) Prior to the determination of the Participant's actual Annual
Compensation for the Limitation Year, the amount referred to in
Section 5.1(f) above may be determined on the basis of the
Participant's estimated Annual Compensation for such Limitation Year.
Such estimated Annual Compensation shall be determined on a reasonable
basis and shall be uniformly determined for all Participants similarly
situated. Any Employer contributions (including allocation of
forfeitures) based on estimated Annual Compensation shall be reduced
by an Excess Amount carried over from prior Years.
(h) As soon as is administratively feasible after the end of the
Limitation Year, the amount referred to in Section 5.1(f) above, shall
be determined on the basis of the Participant's actual Annual
Compensation for such Limitation Year.
(i) If the Annual Additions with respect to the Participant under other
Related Plans and welfare plans described in Section 5.1(f)(ii) and
(iii) are less than the Maximum Permissible Amount and the Employer
contribution that otherwise would be contributed or allocated to the
Participant's Individual Account under this Plan would cause the
Annual Additions for the Limitation Year to exceed the limitation of
Section 5.1(f), the amount contributed or allocated under the Related
Plans will first be reduced and then the amount contributed or
allocated under this Plan will be reduced so that the Annual Additions
under all such plans for the
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Limitation Year will equal the Maximum Permissible Amount. If the
Annual Additions with respect to the Participant under the Related
Plans and welfare plans described in Section 5.1(f)(ii) and (iii) in
the aggregate are equal to or greater than the Maximum Permissible
Amount, no amount will be contributed or allocated to the
Participant's Individual Account under this Plan for the Limitation
Year unless the Annual Additions with respect to the Participant under
the Related Plans are sufficiently reduced. If a Participant's Annual
Additions under this Plan and all Related Plans result in an Excess
Amount, such Excess Amount shall be deemed to consist of the amounts
last allocated to the Related Plans and Annual Additions attributable
to a welfare plan described in Section 5.1(f)(ii) or (iii) will be
deemed to have been allocated first regardless of the actual
allocation date.
(j) If an Excess Amount was allocated to a Participant on an allocation
date of a Related Plan, the Excess Amount attributed to this Plan will
be the product of:
(i) the total Excess Amount allocated as of such date [including any
amount which would have been allocated but for the limitations of
Section 5.1(a)],
multiplied by:
(ii) the ratio of:
(A) the amount allocated to the Participant as of such date
under this Plan,
divided by:
(B) the total amount allocated as of such date under this Plan
and all Related Plans [determined without regard to Section
5.1(a)].
(k) Any Excess Amounts attributed to this Plan shall be disposed of as
provided in Section 5.1(d).
(l) If an Employer maintains, or has ever maintained, one or more defined
benefit plans covering an Employee who is also a Participant in this
Plan, the sum of the Defined Contribution Plan Fraction and the
Defined Benefit Plan Fraction, cannot exceed 1.0 for any Limitation
Year. The Annual Addition for any Limitation Year beginning before
January 1, 1987 shall not be recomputed to treat all Employee
contributions as an Annual Addition. If the Plan satisfied the
applicable requirements of Section 415 of the Code as in effect for
all Limitation Years beginning before January 1, 1987, an amount shall
be subtracted from the numerator of the Defined Contribution Plan
Fraction (not exceeding such numerator) as prescribed by the Secretary
of Treasury so that the sum of the Defined Benefit Plan Fraction and
the Defined Contribution Plan Fraction computed
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under Section 415(e)(1) of the Code [as revised by this Section
5.1(l)] does not exceed 1.0 for such Limitation Year.
(m) For the purpose of Section 5.1(l), Employee contributions to a defined
benefit plan are treated as a separate defined contribution plan. In
addition, any contributions paid or accrued after December 31, 1985
which are attributable to medical benefits allocated under a welfare
benefit fund [as defined in Section 419(e) of the Code] during Years
ending after December 31, 1985 to a separate account established for
any post-retirement medical benefits provided with respect to a
Participant, who, at any time, during the Year or any preceding Year,
is or was a Key Employee, shall be treated as Annual Additions to a
defined contribution plan. Further, all defined contribution plans of
an Employer are to be treated as one defined contribution plan and all
defined benefit plans of an Employer are to be treated as one defined
benefit plan, whether or not such plans have been terminated.
(n) If the sum of the Defined Contribution Plan Fraction and the Defined
Benefit Plan Fraction exceeds 1.0, the sum of the fractions will be
reduced to 1.0 as follows:
(i) voluntary nondeductible Employee contributions made by a
Participant to the defined benefit plan which constitute an
Annual Addition to a defined contribution plan, to the extent
they would reduce the sum of the fractions to 1.0, will be
returned to the Participant;
(ii) if additional reductions are required for the sum of the
fractions to equal 1.0, voluntary nondeductible Employee
contributions made by a Participant to this Plan which constitute
an Annual Addition to this Plan, to the extent they would reduce
the sum of the fractions to 1.0, will be returned to the
Participant;
(iii)if additional reductions are required for the sum of the
fractions to equal 1.0, the Annual Benefit of a Participant under
the defined benefit plan will be reduced (but not below zero and
not below the amount of the Participant's accrued benefit to
date) to the extent necessary to prevent the sum of the
fractions, computed as of the close of the Limitation Year from
exceeding 1.0; and
(iv) if additional reductions are required for the sum of the
fractions to equal 1.0, the reductions will then be made to the
Annual Additions of this Plan.
(o) Definitions:
(i) Annual Additions means the sum of the following amounts allocated
to a Participant's Individual Account for a Limitation Year:
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(A) all Employer contributions;
(B) all forfeitures;
(C) all Employee contributions; and
(D) amounts described in Sections 415(l)(1) and 419A(d)(2) of
the Code.
For purposes of this Section 5.1(o)(i), Employee contributions
shall be determined without regard to any (i) rollover
contribution within the meaning of Section 402(a)(5), 403(a)(4)
or 408(d)(3) of the Code [or, on or after January 1, 1993, an
eligible rollover contribution as described in Section 402(c)(4)
of the Code], (ii) contribution by the Employee to a simplified
employee pension, and (iii) contribution to an individual
retirement account or individual retirement annuity.
(ii) Excess Amount means the excess of the Annual Additions allocated
to a Participant's Individual Account for the Limitation Year
over the Maximum Permissible Amount, less loading and other
administrative charges allocable to such excess.
(iii)Limitation Year means a twelve-consecutive month period ending
on the Anniversary Date. All qualified plans maintained by the
Employer must use the same Limitation Year. If the Limitation
Year is amended to a different 12-consecutive month period, the
new Limitation Year must begin on a date within the Limitation
Year in which the amendment is made.
(iv) Maximum Permissible Amount for a Limitation Year with respect to
any Participant shall be the lesser of:
(A) $30,000 [or, if greater, one-fourth of the dollar limitation
in effect under Section 415(b)(1)(A) of the Code as it may
be adjusted under Section 415(d)(1) of the Code by the
Secretary of the Treasury for the Limitation Year]; or
(B) 25% of the Participant's Annual Compensation for the
Limitation Year.
(v) Employer means for purposes of this Section 5.1, any Employer and
any Affiliated Company that adopts this Plan; provided, however,
the determination under Section 414(b) and (c) of the Code shall
be made as if the phrase "more than 50 percent" were substituted
for the phrase "at least 80 percent" each place it is
incorporated into Section 414(b) and (c) of the Code.
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(vi) Annual Compensation means, notwithstanding Section 1.5, for the
purposes of this Section 5.1, a Participant's earned income,
wages, salaries, fees for professional service and other amounts
received (without regard to whether an amount is paid in cash)
for personal services actually rendered in the course of
employment with an Employer maintaining the Plan to the extent
that the amounts are includable in gross income (including, but
not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits,
reimbursements, and expense allowances) and excluding the
following:
(A) Employer contributions to a plan of deferred compensation to
the extent contributions are not included in gross income of
the Employee for the taxable year in which contributed, or
on behalf of an Employee to a simplified employee pension
plan to the extent such contributions are deductible under
Section 219(b)(2) of the Code, and any distributions from a
plan of deferred compensation whether or not includable in
the gross income of the Employee when distributed;
(B) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an
Employee becomes freely transferable or is no longer subject
to a substantial risk of forfeiture;
(C) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(D) other amounts which receive special tax benefits, or
contributions made by an Employer (whether or not under a
salary reduction agreement) towards the purchase of a 403(b)
annuity contract under Section 403(b) of the Code (whether
or not the contributions are excludable from the gross
income of the Employee), contributions made by an Employer
for medical benefits [within the meaning of Section 401(h)
or 419A(f)(2) of the Code] which is otherwise treated as an
Annual Addition, or any amount otherwise treated as an
Annual Addition under Section 415(l)(1) or 419A(d)(2) of the
Code.
For Limitation Years after December 31, 1991, Annual Compensation
for any Limitation Year is the Annual Compensation actually paid
or includable in gross income during such Limitation Year.
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(vii)Related Plan means any other defined contribution plan [as
defined in Section 415(k) of the Code] maintained by any Employer
as defined in Section 5.1(o)(v).
(viii) Defined Contribution Plan Fraction means for any Limitation
Year:
(A) the sum of the Annual Additions to the Participant's account
under this Plan and any Related Plan and welfare plans [as
described in Section 5.1(f)(ii) and (iii)] as of the close
of the Limitation Year,
divided by:
(B) the sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of his
service for an Employer:
(1) the product of 1.25, multiplied by the dollar
limitation in effect under Section 415(c)(1)(A) of the
Code for the Limitation Year [determined without regard
to Section 415(c)(6) of the Code], or
(2) the product of 1.4, multiplied by an amount equal to
25% of the Participant's Annual Compensation for the
Limitation Year.
If the Employee was a Participant as of the end of the first day
of the first Limitation Year beginning after December 31, 1986,
in one or more defined contribution plans maintained by an
Employer which were in existence on May 6, 1986, the numerator of
the Defined Contribution Plan Fraction will be adjusted if the
sum of that fraction and the Defined Benefit Plan Fraction
otherwise would exceed 1.0 under the terms of this Plan. Under
the adjustment, an amount equal to the product of (i) the excess
of the sum of the fractions over 1.0, times (ii) the denominator
of this fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated using
the fractions as they would be computed under this Section 5.1(o)
as of the end of the last Limitation Year beginning before
January 1, 1987, and disregarding any changes in the terms and
conditions of the Plan made after May 6, 1986, but using the
Section 415 limitations applicable to the first Limitation Year
beginning on or after January 1, 1987. The Annual Addition for
any Limitation Year beginning before January 1, 1987, shall not
be recomputed to treat all Employee contributions as Annual
Additions. The adjustment also will be made if at the end of the
last Limitation Year beginning before January 1, 1984, the sum of
the fractions exceeds 1.0 because of accruals or
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additions that were made before the limitations of this Article V
became effective to any plans of an Employer in existence on July
1, 1982. With respect to any Limitation Year ending after
December 31, 1982, the amount taken into account under Section
5.1(o)(viii)(B) above with respect to each Participant for all
Limitation Years ending before January 1, 1983, shall be an
amount equal to the product of (C) and (D), where
(C) is the amount determined under Section 5.1(o)(viii)(B) [as
in effect for the Limitation Year ending in 1982] for the
Limitation Year ending in 1982, multiplied by
(D) a fraction, the numerator of which is the lesser of
(1) $51,875, or
(2) 1.4, multiplied by 25% of the Annual Compensation of
the Participant for the Limitation Year ending in 1981,
and
the denominator of which is the lesser of
(1) $41,500 or
(2) 25% of the Annual Compensation of the Participant for
the Limitation Year ending in 1981.
(ix) Defined Benefit Plan Fraction means for any Limitation Year:
(A) the projected Annual Benefit of the Participant under the
defined benefit plans maintained by an Employer determined
as of the close of the Limitation Year,
divided by:
(B) the lesser of:
(1) the product of 1.25, multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the
Code for the Limitation Year, or
(2) the product of 1.4, multiplied by 100% of the
Participant's Average Compensation.
If the Employee was a Participant as of the first day of the
first Limitation Year beginning after December 31, 1986, in
one or more defined benefit plans maintained by
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an Employer which were in existence on May 6, 1986, the
denominator of this fraction will not be less than 125% of
the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the
Plan after May 5, 1986. The preceding sentence applies only
if the defined benefit plans individually and in the
aggregate satisfied the requirements of Section 415 of the
Code for all Limitation Years beginning before January 1,
1987.
(x) Average Compensation means the average Annual Compensation during
a Participant's high three years of service, which period is the
three consecutive calendar years (or, the actual number of
consecutive years of employment for those Employees who are
employed for less than three consecutive years with an Employer)
during which the Employee had the greatest aggregate Annual
Compensation from the Employer, including any adjustments under
Section 415(d) of the Code.
(xi) Annual Benefit means a benefit payable annually in the form of a
straight life annuity (with no ancillary benefits) under a plan
to which Employees do not contribute and under which no rollover
contributions are made.
ARTICLE VI
INDIVIDUAL ACCOUNTS
Sec. 6.1 Participant Interest in Individual Accounts. Each Participant and
Former Participant shall have such right, title and interest in the balance
of his Individual Account except as hereinafter provided. In no event shall
his nonforfeitable interest exceed the amount to the credit of his
Individual Account as the same may be adjusted from time to time.
Sec. 6.2 Annual Statement to Participant. At least annually the Named Fiduciary
shall advise each Participant, Former Participant, and Beneficiary for whom
an Individual Account is held hereunder of the then fair market value of
such Individual Account.
ARTICLE VII
RETIREMENT
Sec. 7.1 Normal Retirement. A Participant may retire from the employ of the
Employer on or after his Normal Retirement Date. A Participant's Individual
Account shall become nonforfeitable on his Normal Retirement Date.
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Sec. 7.2 Early Retirement. A Participant may retire from the employ of the
Employer on his Early Retirement Date.
Sec. 7.3 Other Retirement. A Participant's retirement will commence on the
Anniversary Date coinciding with or next following a Participant's
termination of service with all Affiliated Companies if he retires under
the provisions of any other qualified retirement plan of his Employer.
Sec. 7.4 Benefits on Retirement. Upon the retirement of a Participant on or
after his Normal Retirement Date or his Early Retirement Date, his entire
Individual Account shall be held for his benefit. Said Participant shall
receive payment from his Individual Account in a single lump sum in
accordance with Article XI hereof as soon as administratively practicable
after his Individual Account has been credited and adjusted (as provided in
Article IV) as of the Anniversary Date concurrent with or next following
his retirement. For Participants in the Plan as of March 31, 1994, the
Named Fiduciary shall direct the Trustee to begin distribution prior to the
time set forth in the preceding sentence if the Participant directs the
Named Fiduciary in writing.
Sec. 7.5 Payments to a Participant Who is 70-1/2 or a Five Percent Owner.
Notwithstanding Section 7.4, a Participant who attains age 70-1/2 or who is
a five percent owner shall begin receiving distributions from the Plan, as
provided in Article XI, by his Required Beginning Date as defined in
Section 11.4(i)(ii). A Participant is treated as a five percent owner for
purposes of this Section 7.5 and Section 11.4(i)(ii) if such Participant is
a five percent owner as defined in Section 416(i) of the Code (determined
in accordance with Section 416 but without regard to whether the Plan is
top heavy) at any time during the Year ending with or within the calendar
year in which such owner attains age 66-1/2 or any subsequent Year. Once
distributions have begun to a five percent owner after his Required
Beginning Date, they must continue to be distributed, even if the
Participant ceases to be a five percent owner in a subsequent Year.
Sec. 7.6 Final Contribution After Distribution of Benefits. If a Participant who
has already received a distribution of his Individual Account under this
Article is entitled to an allocation of an Employer contribution under
Section 4.3 for the Year in which such distribution was made, such
contributions shall be paid to the Participant as soon as administratively
practicable following the completion of the allocations under Article IV
for such Year.
ARTICLE VIII
DEATH
Sec. 8.1 Benefits on Death. Upon the death of a Participant who is in the
service of the Employer, his entire Individual Account shall be held for
the benefit of his Beneficiary. Upon the
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death of a Participant whose service with the Employer has terminated, his
nonforfeitable interest (determined under Section 10.2) in his Individual
Account which has not been distributed at the time of his death under
Articles VII-X shall be held for the benefit of his Beneficiary. His
Beneficiary shall receive payment from his Individual Account in a single
lump sum in accordance with Article XI hereof as soon as administratively
practicable after the Participant's Individual Account has been credited
and adjusted (as provided in Article IV) as of the Anniversary Date
concurrent with or next following the Participant's death. The Named
Fiduciary shall direct the Trustee to begin distribution prior to the time
set forth in the preceding sentence if the Beneficiary directs the Named
Fiduciary in writing. Any Beneficiary who receives a distribution of a
portion of a Participant's Individual Account by reason of a Participant's
death prior to August 23, 1984 shall be treated as receiving such
distribution in accordance with the distribution rules applicable to the
Plan prior to its restatement effective April 1, 1985.
Sec. 8.2 Final Contribution After Payment of Benefits. If the Individual Account
of a deceased Participant whose Beneficiary has already received a
distribution of the Participant's Individual Account under this Article is
entitled to an allocation of an Employer contribution under Section 4.3 for
the Year in which such distribution was made, such contributions shall be
paid to the Beneficiary as soon as administratively practicable following
the completion of the allocations under Article IV for such Year.
ARTICLE IX
DISABILITY
Sec. 9.1 Benefits on Disability. In the event of termination of a Participant's
employment due to Disability, his entire Individual Account shall be held
for his benefit. If the balance of the Participant's Individual Account
exceeds $3,500, the Participant shall receive payment from his Individual
Account in a single lump sum in accordance with Article XI hereof as soon
as administratively practicable after the allocations have been completed
and his Individual Account has been credited and adjusted (as provided in
Article IV) as of the Anniversary Date concurrent with or next following
the date his Normal Retirement Date or earlier death occurs. The Named
Fiduciary shall direct the Trustee to begin distribution prior to the time
set forth in the preceding sentence if the Participant directs the Named
Fiduciary in writing. If the balance of the Participant's Individual
Account does not exceed $3,500, the Participant's entire Individual Account
shall be distributed to him in a single lump sum as soon as
administratively practicable after the allocations have been completed and
his Individual Account has been credited and adjusted (as provided in
Article IV) as of the Anniversary Date of the Year in which the date of his
Disability occurs. The Named Fiduciary shall direct the Trustee to begin
distribution prior to the time set forth in
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the preceding sentence if the Participant directs the Named Fiduciary in
writing.
Sec. 9.2 Final Contribution After Payment of Benefits. If a Participant who has
already received a distribution of his Individual Account under this
Article is entitled to an allocation of an Employer contribution under
Section 4.3 for the Year in which the distribution was made, such
contributions shall be paid to the Participant as soon as administratively
practicable following the completion of the allocations under Article IV
for such Year.
ARTICLE X
TERMINATION BENEFITS
Sec. 10.1 Termination Other than by Reason of Death, Disability or Retirement.
If a Participant terminates his employment for any reason other than
retirement (whether normal or early), death or Disability, such Participant
shall be entitled to such benefits as are hereinafter provided in Section
10.2 at the time specified in Section 10.3.
Sec. 10.2 Vested Interest. A Participant to whom the provisions of Section 10.1
are applicable shall be entitled (as a vested interest) to receive a
percentage of the then balance to his credit in his Individual Account, if
any, determined in accordance with the following schedule:
Years of Service (Vesting) Vested Interest
-------------------------- ---------------
Less than 5 0%
5 or more 100%
A Participant who had no vested interest in the Plan as of April 1, 1989
shall vest under the above schedule. A Participant with a vested interest
in the Plan as of April 1, 1989 will retain his vested percentage under the
schedule in effect under the Plan as of March 31, 1989 and will continue to
have his vested percentage increased under that schedule until he is
credited with five Years of Service (Vesting) at which time he will become
fully vested. Accordingly, those Participants with 3 or 4 Years of Service
(Vesting) as of March 31, 1989 will vest under the following schedule:
Years of Service (Vesting) Vested Interest
-------------------------- ---------------
3 but fewer than 4 30%
4 but fewer than 5 40%
5 or more 100%
Sec. 10.3 Time of Distribution. If a Participant's employment terminates for a
reason other than retirement (whether normal or early), death or
Disability, and the value of the vested portion of
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his Individual Account exceeds $3,500, the portion of his Individual
Account to which he is entitled under Section 10.2 shall be distributed to
the Participant with his written consent. The distribution shall be made in
a single lump sum in accordance with Article XI hereof as soon as
administratively practicable after his Individual Account has been credited
and adjusted (as provided in Article IV) as of the earlier of (i) the
Anniversary Date immediately following the date the Participant incurs a
One-Year Break in Service following his termination of employment, provided
the written consent of the Participant to such distribution is received by
the Named Fiduciary not later than 60 days after such Anniversary Date, or
(ii) the Anniversary Date following the date his Normal Retirement Date or
earlier death occurs, but not later than the time specified in Section
11.4. If the Participant does not elect to receive the distribution when he
is first eligible under the preceding sentence, he may elect to receive the
distribution of his Individual Account in a single lump sum as soon as
administratively practicable after his Individual Account has been credited
and adjusted (as provided in Article IV) as of any subsequent Anniversary
Date if he has provided written consent to such distribution to the Named
Fiduciary not later than 60 days after such Anniversary Date. If, however,
the vested balance of the terminated Participant's Individual Account does
not exceed $3,500, the vested balance of the Participant's Individual
Account shall be distributed to him in a single lump sum as soon as
administratively practicable after the allocations have been completed and
his Individual Account has been credited and adjusted (as provided in
Article IV) as of the Anniversary Date of the Year in which the Participant
incurs a One-Year Break in Service. The balance to the credit of a
terminated Participant in his Individual Account which is not vested under
the schedule in Section 10.2, if not previously forfeited, shall be
forfeited as of the earlier of (i) the date his entire vested Individual
Account balance has been distributed under Article XI or (ii) the last day
of the Year in which such Participant incurs a Five-Year Break in Service.
If the Participant is not entitled to any portion of his Individual Account
under Section 10.2, he shall be deemed to have received a distribution and
shall forfeit the balance of his Individual Account on the date of his
incurring a One-Year Break in Service. The forfeited amount under this
Section 10.3 shall remain in the Trust Fund and shall be applied as
provided in Section 10.5. If a Former Participant is reemployed by an
Affiliated Company without incurring a Five-Year Break in Service, the
portion of his Individual Account which was forfeited hereunder shall be
restored to his Individual Account in full. If currently unallocated
forfeitures are not adequate to effect the restoration, the Company or the
Affiliated Company shall make such additional contribution to the Plan as
is necessary to restore the forfeited portion of his Individual Account.
Any Participant (i) who incurred a termination of employment in a Plan Year
beginning prior to January 1, 1985, (ii) who was not 100% vested in his
Individual Account upon termination and (iii) who received a distribution
of a vested portion of his Individual Account in a Year beginning prior to
January 1, 1985 by reason of such termination shall be treated as
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receiving such distribution in accordance with the distribution, vesting
and forfeiture rules applicable to the Plan prior to its restatement
effective April 1, 1985.
Sec. 10.4 Forfeiture and Return to Service Prior to Complete Distribution. After
a Five-Year Break in Service, a Participant to whom this Article X is
applicable, other than a Participant described in Section 10.3, shall
forfeit that portion of the amount of his Individual Account to which he is
not entitled under Section 10.2 and the amount thus forfeited shall remain
in the Trust Fund and shall be applied as provided in Section 10.5. The
amount forfeited by a Participant hereunder shall be charged to his
Individual Account on the Anniversary Date as of which he shall incur a
Five-Year Break in Service. If the Participant returns to the service of
the Employer after a Five-Year Break in Service, but before the full
payment of his Individual Account, Employer contributions after such
Five-Year Break in Service shall be allocated to a Parent Company Stock
Account and Other Investments Account established on behalf of such
Participant which is separate from the Individual Account of such
Participant to which is allocated his account balance attributable to
service prior to the Five-Year Break in Service.
Sec. 10.5 Application of Forfeitures. The forfeitures occurring as provided in
Sections 10.3 and 10.4 shall first be used to restore the account of a
Former Participant who has been located as provided in Section 11.8. If
additional forfeitures remain after full restorations under Section 11.8,
then remaining forfeitures shall be used to restore accounts of Former
Participants under Section 10.3. If additional forfeitures remain
thereafter, they shall be allocated as provided in Section 4.3(c)(ii) among
the appropriate Parent Company Stock Accounts and Other Investments
Accounts on the Anniversary Date of the Year the forfeiture occurs.
ARTICLE XI
DISTRIBUTIONS
Sec. 11.1 Form of Payment. Except as provided in Section 11.4(d), whenever a
Participant, Former Participant or Beneficiary is entitled to or required
to receive benefits hereunder as provided in Articles VII to X, inclusive,
the Named Fiduciary shall direct the Trustee to pay such benefits in a lump
sum provided that a life annuity may not be a part of a lump sum
distribution. Distribution of the amounts from a Participant's Individual
Account will be made entirely in whole shares of Parent Company Stock and
the value of any fractional share will be paid in cash. The distribution
which a Participant is entitled to receive from his Parent Company Stock
Account shall be equal to the number of shares of Parent Company Stock
credited to his Parent Company Stock Account as of the immediately
preceding Allocation Date plus any
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stock dividends to which he is entitled under Section 4.3(f). Any balance
of his Other Investments Account as of the immediately preceding Allocation
Date, plus cash or in-kind dividends to which the Participant is entitled
under Section 4.3(f) will be used to purchase for distribution to him the
maximum number of whole shares of Parent Company Stock at the fair market
value per share as of the date of purchase, and any unexpended balance will
be distributed to him in cash.
Sec. 11.2 Consent to Distribution. If the vested balance of the Participant's
Individual Account exceeds $3,500 and any part of the Individual Account
could be distributed to the Participant before the Participant attains (or
would have attained if not deceased) his Normal Retirement Date, the
Participant must consent in writing to any distribution of such Individual
Account. The consent must be obtained in writing within the 90-day period
prior to the date benefit payment is to commence. The Named Fiduciary shall
notify the Participant of the right to defer any distribution until his
Normal Retirement Date. Such notification shall be provided no less than 30
days and no more than 90 days before benefit payment is to commence and
shall include a general description of the material features, and an
explanation of the relative values of, the form of benefit available under
Section 11.1 in a manner that would satisfy the notice requirements of
Section 417(a)(3) of the Code and a description of his direct rollover
rights under Section 11.10. If the vested balance of the Participant's
Individual Account does not exceed $3,500, the Participant, Former
Participant, or Beneficiary does not have a right to delay the
distribution, but shall be provided with a notice of his direct rollover
rights under Section 11.10. A distribution may commence less than 30 days
after the notice required under Treas. Reg. ss.1.411(a)-11(c) is given,
provided that (i) the Named Fiduciary clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option), and
(ii) the Participant, after receiving the notice, affirmatively elects a
distribution. The consent of the Participant is not required to the extent
that a distribution is required to satisfy Section 401(a)(9) or Section 415
of the Code.
Sec. 11.3 Minority or Disability of Distributee. During the minority or
disability of a person entitled to receive benefits hereunder, the Named
Fiduciary may direct the Trustee to make payments due such person directly
to him or to his spouse or a relative or to any individual or institution
having custody of such person. Neither the Employer, the Named Fiduciary
nor the Trustee shall be required to see to the application of any payments
so made and the receipt of the payee (including the endorsement of a check
or checks) shall be conclusive as to all interested parties.
Sec. 11.4 Time of Payment and Payment on Death. Notwith- standing any other
provisions of the Plan, the following provisions shall be applicable to the
Plan:
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(a) Payment of benefits shall begin, unless the Participant otherwise
elects, not later than the 60th day after the Anniversary Date of the
Year in which the latest of the following events occurs:
(i) the Participant reaches the earlier of age 65 or his Normal
Retirement Date;
(ii) the tenth anniversary of the date on which the Participant
commenced participation in the Plan occurs, but not later than
the April 1 of the calendar year following the calendar year in
which the Participant attains age 70-1/2; or
(iii)the Participant terminates his service with the Employer, but in
no event later than the April 1 of the calendar year following
the calendar year in which the Participant attains age 70-1/2.
If the Participant fails to consent to a distribution at a time when
any part of the balance of the Individual Account could be distributed
prior to the Participant's Normal Retirement Date, such failure shall
be deemed to be an election to defer commencement of payment of any
benefit under this Section 11.4(a).
(b) All distributions required under this Article XI shall be determined
and made in accordance with Section 401(a)(9) of the Code and the
Treasury Regulations thereunder, including the minimum distribution
incidental benefit requirements of Treas. Reg. ss.1.401(a)(9)-2.
(c) An election of a Participant to defer receipt of benefits shall be
made by submitting to the Named Fiduciary a written statement signed
by the Participant, describing the benefits and the date on which the
Participant requests that the payments commence; provided, however, a
Participant may not elect to defer receipt or commencement of receipt
of benefits beyond his Required Beginning Date.
(d) If a Participant is employed by an Employer as of his Required
Beginning Date, the following minimum distribution rules shall apply:
(i) As of the first Distribution Calendar Year, distributions shall
commence to be made over one of the following periods): (A) a
period certain equal to the Life Expectancy of the Participant;
or (B) a period certain equal to the Joint and Last Survivor
Expectancy of the Participant and his spouse, if any;
(ii) The amount required to be distributed for each calendar year,
beginning with distributions for the first Distribution Calendar
Year, shall be equal to the
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quotient obtained by dividing the Participant's Benefit by the
Applicable Life Expectancy;
(iii)The minimum distribution required for the Participant's first
Distribution Calendar Year shall be made on or before the
Participant's Required Beginning Date; provided that the
Participant may elect for the Named Fiduciary to direct the
Trustee to make that distribution on or before December 31 of the
first Distribution Calendar Year;
(iv) If distribution of benefits to a Participant has begun under this
Section 11.4(d) and the Participant retires, dies, becomes
disabled or incurs any other termination of employment before his
entire Individual Account has been distributed to him, the
remaining portion of such Participant's Individual Account shall
be distributed to him or to his Beneficiary in a single lump sum
as provided in Section 7.4, 8.1, 9.1 or 10.3, whichever is
applicable.
(e) If a Participant dies before the distribution of benefits to him has
begun under Section 11.1, distribution to his Beneficiary of his
entire Individual Account must be completed by December 31 of the
calendar year containing the fifth anniversary of the death of such
Participant. The provisions of this Section 11.4(e) shall not apply to
the portion of the Participant's Individual Account which is payable:
(i) to a Designated Beneficiary other than the Participant's
surviving spouse under Section 11.1 on or before December 31 of
the calendar year immediately following the calendar year in
which the Participant died; or
(ii) under Section 11.1 to a Designated Beneficiary who is the
surviving spouse of the Participant at least by the later of (A)
the December 31 of the calendar year immediately following the
calendar year in which the Participant died and (B) the December
31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has no Designated Beneficiary, distribution of the
Participant's entire Individual Account must be completed by December
31 of the calendar year containing the fifth anniversary of the
Participant's death.
(f) If a portion of the Participant's Individual Account is payable to the
Participant's surviving spouse and such spouse dies before
distributions to such spouse begin, the spouse shall be treated as the
Participant under Section 11.4(e) with the exception of the provisions
of subsection (ii) thereof.
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(g) Any portion of a Participant's Individual Account paid to a child
shall be treated as if such portion has been paid to the Participant's
surviving spouse if such portion will become payable to the surviving
spouse upon the date the child reaches majority (or other designated
event permitted under regulations prescribed by the Secretary of the
Treasury).
(h) Distribution of a Participant's Individual Account is considered to
begin on the Participant's Required Beginning Date or, if Section
11.4(f) is applicable, the date distribution is required to begin to
the surviving spouse pursuant to Section 11.4(e)(ii).
(i) Definitions:
(i) Designated Beneficiary is the individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9)
of the Code and the Treasury Regulations thereunder.
(ii) The Required Beginning Date of a Participant shall be determined
as follows:
(A) If the Participant attains age 70-1/2 after December 31,
1987, his Required Beginning Date is the April 1 of the
calendar year following the calendar year in which the
Participant attains age 70-1/2;
(B) If the Participant attains age 70-1/2 before January 1, 1988
and was not a five percent owner within the meaning of
Section 7.5, his Required Beginning Date is the April 1 of
the calendar year following the calendar year in which the
later of the Participant's retirement or attainment of age
70-1/2 occurs;
(C) If a Participant is not a five percent owner within the
meaning of Section 7.5 and attains age 70-1/2 during 1988
and has not retired as of January 1, 1989, his Required
Beginning Date is April 1, 1990; or
(D) If the Participant was a five percent owner within the
meaning of Section 7.5 during any Year beginning after
December 31, 1979, his Required Beginning Date is the April
1 of the calendar year following the later of (1) the
calendar year in which the Participant attains age 70-1/2 or
(2) the earlier of the calendar year with or within which
ends the Year in which the Participant becomes a five
percent owner, or the calendar year in which the Participant
retires.
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(iii)For the first distribution under Section 11.4(d), if any,
Applicable Life Expectancy means the Life Expectancy (or Joint
and Last Survivor Expectancy) computed (by use of the expected
return multiples in Tables V and VI of Section 1.72-9 of the
Treasury Regulations) using the attained age of the Participant
(or his spouse, if any) as of the Participant's (or his spouse's)
birthday in the applicable calendar year. Applicable Life
Expectancy for each subsequent distribution shall be the Life
Expectancy (or Joint and Last Survivor Expectancy) as
recalculated. The Participant may elect whether the Applicable
Life Expectancy [to be used in calculating the required
distributions] under Section 11.4(d), if any] is his Life
Expectancy or the Joint and Last Survivor Expectancy of him and
his spouse; provided, however, that the Participant's spouse must
be his Designated Beneficiary in order for the required
distributions to be made over the Joint and Last Survivor
Expectancy of him and his spouse. If the Participant fails to
elect before the Required Beginning Date, the Applicable Life
Expectancy shall be the Life Expectancy of the Participant
(irrespective of whether the Participant has a spouse) and such
Life Expectancy shall be recalculated. The applicable calendar
year shall be the first Distribution Calendar Year and each such
succeeding calendar year.
(iv) For purposes of Section 11.4(d), Participant's Benefit means the
balance of the Participant's Individual Account as of the last
valuation date in the calendar year immediately preceding the
Distribution Calendar Year (valuation calendar year) increased by
the amount of any contributions or forfeitures allocated to the
Individual Account as of dates in the valuation calendar year
after the valuation date and decreased by distributions made in
the valuation calendar year after the valuation date. For
purposes of this Section 11.4(i)(iv), if any portion of the
minimum distribution for the first Distribution Calendar Year is
made in the second Distribution Calendar Year on or before the
Required Beginning Date, the amount of the minimum distribution
made in the second Distribution Calendar Year shall be treated as
if it had been made in the immediately preceding Distribution
Calendar Year.
(v) Distribution Calendar Year means a calendar year for which a
minimum distribution is required. For distributions beginning
before the Participant's death, the first Distribution Calendar
Year is the calendar year immediately preceding the calendar year
which contains the Participant's Required Beginning Date. For
distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year
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in which distributions are required to begin pursuant to this
Section 11.4.
Sec. 11.5 Claims Procedure. The Named Fiduciary shall make all determinations as
to the right of any person to receive a benefit. The denial by the Named
Fiduciary of a claim for benefits under the Plan shall be stated in a
written instrument signed by the Named Fiduciary and delivered to or mailed
to the claimant within 60 days after receipt of the claim by the Named
Fiduciary, unless special circumstances require an extension of time for
processing the claim, in which case a determination shall be made as soon
as possible, but in no event later than 120 days after receipt of the
claim. Written notice of the extension shall be furnished to the claimant
prior to the termination of the initial 60-day period and shall indicate
the circumstances requiring the extension and the date by which the Named
Fiduciary expects to render its decision. The written decision shall set
forth:
(a) the specific reason or reasons for the denial;
(b) a specific reference to the pertinent provisions of the Plan on which
the denial is based;
(c) a description of any additional material or information necessary for
the claimant to perfect a claim and an explanation of why such
material or information is necessary; and
(d) a statement that the claimant may:
(i) request a review upon written application to the Named Fiduciary;
(ii) review pertinent plan documents; and
(iii) submit issues and comments in writing.
If notice of the denial is not furnished in accordance with the above
procedure, the claim shall be deemed denied and the claimant shall be
permitted to proceed with the review procedure. A request by the claimant
for a review of the denied claim must be delivered to the Named Fiduciary
within 60 days after receipt by such claimant of written notification of
the denial of such claim. The Named Fiduciary shall, not later than 60 days
after receipt of a request for a review, make a determination concerning
the claim. If special circumstances require, the Named Fiduciary shall
notify the claimant that an extension of time for processing, not in excess
of 120 days after receipt of the request for review, is necessary. A
written statement stating the decision on review, the specific reasons for
the decision, and the specific provisions of the Plan on which the decision
is based shall be mailed or delivered to the claimant within such 60 (or
120) day period. If the decision on review is not furnished within the
appropriate time, the claim shall be deemed denied on review. All
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communications from the Named Fiduciary to the claimant shall be written in
a manner calculated to be understood by the claimant.
Sec. 11.6 Named Fiduciary's Duty to Trustee. The Named Fiduciary will notify the
Trustee at the appropriate time of all facts which may be necessary
hereunder for the proper allocation of increases, decreases, expenses, and
contributions for Participants, the proper payment or distribution of
benefits, or the proper performance of any other act required of the
Trustee hereunder. The Named Fiduciary will notify the Trustee of such
facts as are needed by the Trustee to perform its functions under the Trust
Agreement. The Named Fiduciary will secure appropriate elections,
directions, and designations for Participants, Former Participants, and
Beneficiaries provided for in the Plan.
Sec. 11.7 Duty to Keep Named Fiduciary Informed of Distributee's Current
Address. Each Participant and Beneficiary must file with the Named
Fiduciary from time to time in writing his post office address and each
change of post office address. Any communication, statement or notice
addressed to a Participant or Beneficiary at his last post office address
filed with the Named Fiduciary or if no address is filed with the Named
Fiduciary then at his last post office address as shown on an Employer's
records, will be binding on the Participant and his Beneficiary for all
purposes of the Plan. Neither the Named Fiduciary nor the Trustee shall be
required to search for or locate a Participant or Beneficiary.
Sec. 11.8 Failure to Claim Benefits. In connection with the payment of any
benefits, the Named Fiduciary shall mail by registered or certified mail to
the Participant or Beneficiary at his last known address his distribution
under the Plan. If the Named Fiduciary notifies the Participant or
Beneficiary that he is entitled to a distribution and also notifies him of
the provisions of Section 11.7 and this Section 11.8 and the Participant or
Beneficiary fails to claim his benefits under the Plan or make his current
address known to the Named Fiduciary within three years after such
distribution or notification, the Named Fiduciary, at the end of such
three-year period, will direct that all unpaid amounts which would have
been payable to such Participant or Beneficiary will be forfeited as of the
next Allocation Date and applied as provided in Section 10.5. In the event
that the Participant or Beneficiary is subsequently located, the
Participant's Parent Company Stock Account will be restored and credited
with the number of whole shares of Parent Company Stock and cash for any
fractional share that have an aggregate fair market value equal to the
aggregate value of his Individual Account as of the date that account was
forfeited. The shares of Parent Company Stock and cash credited to his
Parent Company Stock Account shall be distributed to the Participant or
Beneficiary, and an Employer shall contribute an amount to the Plan which
is equal to the amount distributed under the terms of this Section 11.8 to
the extent that such amount cannot be reinstated through forfeitures
occurring during the Year of repayment.
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Sec. 11.9 Distribution Pursuant to Qualified Domestic Relations Orders.
Notwithstanding any other provision of the Plan to the contrary, if the
provisions of a "qualified domestic relations order" within the meaning of
Section 414(p) of the Code provide that distributions shall be made to an
"alternate payee" within the meaning of Section 414(p)(8) of the Code prior
to the time that the Participant with respect to whom the alternate payee's
benefits are derived attains age 50 or would be entitled to a distribution
of assets from the Plan, the Named Fiduciary shall direct the Trustee to
commence payments to the alternate payee as soon as administratively
practicable following the later of (i) the receipt of such qualified
domestic relations order by the Named Fiduciary or (ii) the date the Named
Fiduciary receives the alternate payee's written consent to such
distribution if the alternate payee's benefits under the Plan as determined
by the provisions of the qualified domestic relations order exceed $3,500.
The Named Fiduciary shall determine whether an order constitutes a
"qualified domestic relations order" within the meaning of Section 414(p)
of the Code.
Sec. 11.10 Tax Withholding and Participant's Direct Rollover. If a Participant,
Former Participant or Beneficiary receives a distribution or withdrawal
from the Plan consisting of cash or assets other than Parent Company Stock
with a combined value (excluding the value of Parent Company Stock) in
excess of $200 (the "Non-Parent Company Stock Distribution"), the Trustee
shall withhold the lesser of (a) 100% of the Non-Parent Company Stock
Distribution made to that Participant, Former Participant or Beneficiary or
(b) 20% of the value of the taxable portion of the entire distribution made
after December 31, 1992 which constitutes an eligible rollover distribution
within the meaning of Section 402(c)(4) of the Code. Any amount withheld
shall be deposited by the Trustee with the Internal Revenue Service for the
purpose of paying the distributee's federal income tax liability associated
with the distribution or withdrawal. Notwithstanding the foregoing
provisions, commencing on and after January 1, 1993, each Participant, each
Former Participant and each spouse of a Participant or Former Participant
shall be given the right to elect [pursuant to Section 401(a)(31) of the
Code] to rollover all or any portion of the taxable amount of such person's
distribution or withdrawal directly to an eligible retirement plan as
defined in Section 402(c)(8)(B) of the Code as limited by Section 402(c)(9)
of the Code and, to the extent a direct rollover is elected by any such
person, the withholding requirements of this Section 11.10 will not apply.
Each such election shall be in writing on a form prescribed by the Named
Fiduciary for such purpose and given to the Participant, Former Participant
or spouse within a reasonable period of time prior to the distribution or
withdrawal.
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ARTICLE XII
NOTICES
Sec. 12.1 Notice. As soon as practicable after a Participant, Former Participant
or Beneficiary makes a request for payment, the Named Fiduciary shall
notify the Trustee of the following information and give such directions as
are necessary or advisable under the circumstances:
(a) name and address of the Participant, Former Participant or
Beneficiary,
(b) amount to be distributed, and
(c) any other information required by the Trustee for federal or state
income tax withholding and reporting purposes.
Sec. 12.2 Modification of Notice. At any time and from time to time after giving
the notice as provided for in Section 12.1, the Named Fiduciary may modify
such original notice or any subsequent notice by means of a further notice
or notices to the Trustee but any action taken or payments made by the
Trustee pursuant to a prior notice shall not be affected by a subsequent
notice.
Sec. 12.3 Reliance on Notice. Upon receipt of any notice as provided in this
Article XII, the Trustee shall promptly take whatever action and make
whatever payments are called for therein, it being intended that the
Trustee may rely upon the information and directions in such notice
absolutely and without question. However, the Trustee may call to the
attention of the Named Fiduciary any error or oversight which the Trustee
believes to exist in any notice.
ARTICLE XIII
AMENDMENT OR TERMINATION OF PLAN
Sec. 13.1 Amendment or Termination by Company. At any time the Company acting
through its governing body may amend or modify the Plan, retroactively or
otherwise, or may terminate the Plan, by means of written notice to the
Trustee, subject, however, to the other provisions of this Article XIII.
Such termination may be made without consent being obtained from the
Trustee, any Employer or Affiliated Company, the Committee, the
Participants or their Beneficiaries, Employees or any other interested
person. Also the Plan shall be considered terminated if the Company ceases
business operations or if there is a complete discontinuance of Employer
contributions.
Sec. 13.2 Effect of Amendment. No amendment or modification hereof by the
Company, unless made to secure the approval of the
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Commissioner of Internal Revenue or other governmental bureau or agency,
shall:
(a) operate retroactively to reduce or divest the then vested interest in
any Individual Account or to reduce or divest any benefit then payable
hereunder; or
(b) change the duties or responsibilities of the Trustee without the
written consent or approval of the Trustee.
Each such amendment shall be in writing signed by duly authorized officers
of the Company with such consents or approval, if any, as provided above
and shall become effective when executed by the Company unless a different
effective date is specified in the amendment. The Committee shall give
written notice to all Participants and to the Trustee of all amendments
which are made to this Plan; provided, however, that such notice shall not
be a condition of the effectiveness of any such amendment.
Sec. 13.3 Distribution on Termination or Discontinuance of Contributions. Upon
termination of the Plan or complete discontinuance of contributions to the
Plan, any amount of the Trust Fund previously unallocated, including any
amounts in a suspense account established under Section 5.1, shall be
allocated (unless such allocation would violate Section 5.1), and the
Individual Accounts of all Participants, Former Participants, and
Beneficiaries shall thereupon be and become fully vested and nonforfeitable
to the extent then funded. The Trustee shall deduct from the Trust Fund all
unpaid charges and expenses including those relating to said termination,
except as the same may be paid by the Employer. The Named Fiduciary shall
then adjust the balance of all Individual Accounts on the basis of the net
value of the Trust Fund. The Named Fiduciary shall direct the Trustee to
distribute the amount to the credit of each Participant, Former
Participant, and Beneficiary when all appropriate administrative procedures
have been completed. If any amount in a suspense account shall not be
allocable because of the provisions of Section 5.1, such amount shall be
returned to the Employer. Upon any complete discontinuance of
contributions, the assets of the Trust Fund shall be held and administered
by the Trustee for the benefit of the Participants of the Employer
discontinuing contributions in the same manner and with the same powers,
rights, duties and privileges herein described until the Trust Fund with
respect to such Employer has been fully distributed. Upon the partial
termination of the Plan, the Individual Accounts of affected Participants,
Former Participants, and Beneficiaries shall thereupon be and become fully
vested and nonforfeitable to the extent then funded and shall be
distributed to such Participants, Former Participants and Beneficiaries
when all appropriate administrative procedures have been completed. Subject
to the requirements of Section 11.10 and notwithstanding any other
provisions of the Plan, any distribution under this Section 13.3 shall be
made in a single lump sum distribution as soon as administratively
practicable after the later of (i) the termination of the Plan or (ii) the
receipt
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following application of a favorable determination letter from the Internal
Revenue Service with respect to the termination of the Plan.
Sec. 13.4 Reversion of Contributions to Employer. Except as provided in Section
3.3 and Section 13.3, under no circumstances or conditions shall the Trust
Fund or any portion thereof revert to any Employer or be used for or
diverted to the benefit of anyone other than Participants, Former
Participants and Beneficiaries, it being understood that the Trust Fund
shall be for the exclusive benefit of Participants, Former Participants and
Beneficiaries.
Sec. 13.5 Amendment of Vesting Schedule. At any time that the vesting schedule
of the Plan is amended, or the Plan is amended in any way that directly or
indirectly affects the computation of the Participant's nonforfeitable
interest in his Individual Account, each Participant who has completed at
least five Years (or, for Years beginning after December 31, 1988 with
respect to Participants who complete at least one Hour of Service after
April 1, 1989, each Participant who has completed at least three Years),
whether or not consecutive, during each of which he has completed not fewer
than 1,000 Hours of Service, may elect to have his vested interest in his
Individual Account determined under the vesting schedule in effect prior to
such amendment. An election made under the preceding sentence may be made
at any time within 60 days after the later of the date:
(a) the amendment is adopted;
(b) the amendment becomes effective; or
(c) the Participant is issued written notice of the amendment by the Named
Fiduciary.
An election under this Section shall be made in a written instrument
delivered to the Named Fiduciary and once made, shall be irrevocable. For
the purposes of this Section, a Participant shall be considered to have
completed the five Years (or, for Years beginning after March 31, 1989 with
respect to certain Participants described above, three Years) described in
this Section if he shall have completed such Years prior to the end of the
period during which he could make an election hereunder.
Sec. 13.6 Merger or Consolidation of Plan. In the event of any merger or
consolidation of the Plan with, or transfer in whole or in part of the
assets and liabilities of the Trust Fund to, another trust fund held under
any other plan of deferred compensation maintained or to be established for
the benefit of all or some of the Participants in this Plan, the assets of
the Trust Fund applicable to such Participants shall be transferred to the
other trust fund only if:
(a) each Participant would (if either this Plan or the other plan had then
terminated) receive a benefit immediately after
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the merger, consolidation, or transfer which is equal to or greater
than the benefit he would have been entitled to receive immediately
before the merger, consolidation, or transfer (if this Plan had then
terminated); and
(b) such other plan and trust fund are qualified under Section 401(a) of
the Code and exempt from tax under Section 501(a) of the Code.
ARTICLE XIV
COMMITTEE
Sec. 14.1 Committee Composition. The Company may appoint a Committee consisting
of no fewer than one and no more than five members as determined by the
Company. The Company may remove any member of the Committee at any time and
a member may resign by written notice to the Company. Any vacancy in the
membership of the Committee shall be filled by appointment of the governing
body of the Company, but pending the filling of any such vacancy the then
members of the Committee may act hereunder as though they alone constitute
the full Committee.
Sec. 14.2 Committee Actions. Any and all acts and decisions of the Committee
shall be by at least a majority of the then members, but the Committee may
delegate to any one or more of its members the authority to sign notices or
other documents on its behalf or to perform ministerial acts for it, in
which event the Trustee and any other person may accept such notice,
document or act without question as having been authorized by the
Committee.
Sec. 14.3 Committee Procedure. The Committee may, but need not, call or hold
formal meetings and any decisions made or action taken pursuant to written
approval of a majority of the then members shall be sufficient. The
Committee shall maintain adequate records of its decisions which records
shall be subject to inspection by the Company, Employer, any Participant,
Former Participant, Beneficiary, and any other person to the extent
required by law, but only to the extent that they apply to such person.
Also the Committee may designate one of its members as Chairman and one of
its members as Secretary and may establish policies and procedures
governing it as long as the same are not inconsistent with the terms of the
Plan.
Sec. 14.4 Delegation to Committee and Company's Duty to Furnish Information. The
Committee shall perform the duties and may exercise the powers and
discretion given to it in this Plan and its decisions and actions may be
relied upon by all persons affected thereby. The Trustee may rely without
question upon any notices, directions, or other documents received from the
Committee. The Company and each Employer shall furnish the Committee with
all data and information available to the Company which the Committee may
reasonably require in order to perform its
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duties. The Committee may rely without question upon any such data or
information furnished by the Company and each Employer.
Sec. 14.5 Construction of Plan and Trustee's Reliance. Any and all matters
involving the Plan, including but not limited to any and all disputes which
may arise involving Participants, Former Participants, and Beneficiaries
and/or the Trustee shall be referred to the Committee. The Committee has
the exclusive discretionary authority to construe the terms of the Plan and
the exclusive discretionary authority to determine eligibility for all
benefits hereunder. Any such determinations or interpretations of the Plan
adopted by the Committee shall be final and conclusive and shall bind all
parties. The Trustee may rely upon the decision of the Committee with
respect to any question concerning the meaning, interpretation, or
application of any provision of the Plan.
Sec. 14.6 Committee Member's Abstention in Cases Involving Own Rights.
Notwithstanding any other provision of this Article XIV, no Committee
member shall vote or act upon any matter involving his own rights,
benefits, or participation in the Plan.
Sec. 14.7 Counsel to Committee. The Committee may engage agents to assist it and
may engage legal counsel who may be legal counsel for the Company. All
reasonable expenses incurred by the Committee may be paid from the Trust
Fund.
Sec. 14.8 Powers and Duties. In addition to any implied powers and duties which
may be needed to carry out the provisions of the Plan, the Committee shall
have the following specific powers and duties:
(a) To direct the Trustee as to investments in Parent Company Stock;
(b) To make and enforce such rules and regulations as it shall deem
necessary or proper for the efficient administration of the Plan;
(c) To authorize disbursements from the Trust Fund (any instructions of
the Committee to the Trustee shall be evidenced in writing and signed
by a member of the Committee delegated with such authority by a
majority of the Committee); and
(d) To review the activities of any person designated to carry out the
powers or duties of the Committee and to report to the governing body
of the Company at least once each Year on the overall administration
of the Plan.
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ARTICLE XV
MISCELLANEOUS
Sec. 15.1 No Employment or Compensation Agreement. Nothing contained in the Plan
shall be construed as giving any person or entity any legal or equitable
right against the Company, any Employer, any Affiliated Company, their
stockholders or partners, officers or directors, the Named Fiduciary, or
the Trustee, except as the same shall be specifically provided in the Plan.
Nor shall anything in the Plan give any Participant or other Employee the
right to be retained in the service of an Employer. The employment of all
persons by an Employer shall remain subject to termination by such Employer
to the same extent as if the Plan had never been executed.
Sec. 15.2 Spendthrift Provision. Except as provided by the terms of a domestic
relations order which is determined to be qualified under Section 414(p) of
the Code, no Participant, Former Participant, or Beneficiary shall have the
right to assign or transfer his interest hereunder, nor shall his interest
be subject to claims of his creditors or others, it being understood that
all provisions of the Plan shall be for the exclusive benefit of those
designated herein.
Sec. 15.3 Construction. It is the intention of each Employer that the Plan be
qualified under Section 401 of the Code, and all provisions hereof should
be construed to that result.
Sec. 15.4 Titles. Titles of Articles and Sections hereof are for convenience
only and shall not be considered in construing the Plan.
Sec. 15.5 Texas Law Applicable. The Plan and each of its provisions shall be
construed and their validity determined by the laws of the State of Texas.
Sec. 15.6 Successors and Assigns. The Plan shall be binding upon the successors
and assigns of the Company and each Employer and the Trustee and upon the
heirs and personal representatives of those individuals who become
Participants hereunder.
Sec. 15.7 Allocation of Fiduciary Responsibility by Named Fiduciary. The Named
Fiduciary may, by written instrument, allocate some or all of its
responsibilities to another fiduciary, including the Trustee, or designate
another person to carry out some or all of its fiduciary responsibilities.
Each fiduciary to whom responsibilities are allocated by the Named
Fiduciary will be furnished a copy of the Plan and their acceptance of such
responsibility will be made by agreeing in writing to act in the capacity
designated. The Named Fiduciary shall not be liable for an act or omission
of any person (who is allocated a fiduciary responsibility or who is
designated to carry out such responsibility) in carrying out a fiduciary
responsibility except
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to the extent that with respect to the allocation or designation,
continuation thereof, or implementation or establishment of the allocation
or designation procedures the Named Fiduciary (i) did not perform all of
his duties and responsibilities and exercise his powers hereunder with the
care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent man acting in like capacity and familiar with
such matters would use in the conduct of an enterprise of like character
and with like aims, (ii) knowingly participates in or knowingly undertakes
to conceal an act or omission of another fiduciary of the Plan, with the
knowledge that such act or omission is a breach of fiduciary
responsibility, (iii) did not make reasonable efforts under the
circumstances to remedy a breach of fiduciary responsibility of which the
Named Fiduciary has knowledge, or (iv) did not carry out its specific
responsibilities, in accordance with the standard set forth in (i) above,
and as a result, it has enabled another fiduciary of the Plan to commit a
breach. Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan.
Sec. 15.8 Expenses of Administration. The reasonable expenses incident to the
operation of the Plan, including the compensation of personnel employed
pursuant to Section 14.7, but excluding brokerage commissions, taxes and
other costs incident to the purchase and sale of securities, shall be paid
by the Employer. Except to the extent paid by an Employer, the Named
Fiduciary shall cause the Trustee to pay all expenses incurred in the
administration of the Plan, including expenses of the Committee and
expenses and compensation of the Trustee.
Sec. 15.9 Indemnification of Fiduciaries. The Employer and the Plan shall each
indemnify and hold harmless the members of the Committee, members of the
respective governing bodies of the Employers, any administrator and any
other person who is deemed to be a "fiduciary" under either statutory or
common law and who is also an Employee, officer or director of the Company
or an Affiliated Company from and against any damages, judgments,
settlements, costs, charges or expenses incurred in connection with the
defense of any action, suit or proceeding to which they may be a party or
with which they may be threatened or in connection with any appeal
therefrom by virtue of any act or omission in their respective capacities
for the Plan except to the extent that such act or omission arises from the
gross negligence or willful misconduct of such fiduciary; provided,
however, that notwithstanding anything to the contrary herein, the
foregoing indemnification shall extend and be effective only to the extent
that the same shall be valid and enforceable under all applicable laws.
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<PAGE>
ARTICLE XVI
ADOPTION BY AFFILIATED COMPANIES
Sec. 16.1 Transfer of Employment to Another Employer. When an Employee's
employment with any Employer is terminated, but such Employee continues to
be a Participant by reason of continued employment by another Employer, the
Participant concerned shall not be considered to have changed Employers for
purposes of determining the Participant's eligibility, vesting rights,
participation, and Plan benefits. An Employee who was a Participant when so
transferred, and who is otherwise an eligible Employee, shall continue as a
Participant in the Plan as adopted by his new Employer (whether the Company
or another Employer) and shall continue without any requirement or
re-enrollment unless otherwise required by the Plan. In such event, all
notices, elections, designations, directions and the like theretofore made
shall continue in effect. All interests then credited to the Participant
shall constitute interests credited to the Participant under the Plan as
adopted by his new Employer (whether the Company or another Employer).
Employer contributions shall, subject to the terms and limitations of the
Plan, continue to be made by the Participant's new Employer (whether the
Company or another Employer). Any portion of his Individual Account which
is forfeited shall be allocated to the Individual Accounts of Participants
who are Employees of the Employer which originally made the contributions
so forfeited.
Sec. 16.2 Contributions and Forfeitures. Each Participant shall have his
Individual Account credited with his share of his former Employer's
contributions and with his share of his new Employer's contributions. The
Annual Compensation received by such Participant from each Employer during
the portion of the Year employed by an Employer shall constitute the basis
for his allocation of that particular Employer's contribution. Forfeitures
shall be applied as provided in Section 10.5 only for the benefit of the
Participants employed by the Employer for whom the Participant works or
last worked at the time the forfeiture occurs.
Sec. 16.3 Transfers of Employment Between Affiliated Companies. If an Employee
of one Affiliated Company transfers to the employment of another Affiliated
Company and such Affiliated Company has a comparable plan and trust
agreement, the Trustee of each plan and trust shall make suitable
arrangements for the transfer of the assets held in his Individual Account
from the Plan of the former employer to the plan of the successor employer.
The Employee will be granted credit for Years of Service (Vesting) with the
former employer and will not be deemed to have terminated his employment.
Annual Compensation from the former employer will be considered to be
Annual Compensation from the successor employer.
If an Employee participating in this Plan transfers to the employment
of an Affiliated Company which does not have a comparable plan in force, he
shall not be deemed to have terminated
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employment with the Employer. The value of his Individual Account will be
held for his benefit until he terminates employment with all Affiliated
Companies, dies or retires in accordance with Article VII, at which time
the value of his Individual Account will be distributed to him or his
Beneficiary as provided elsewhere herein. No further Employer contributions
will be made on his behalf, but he will be granted credit for Years of
Service (Vesting) with the Affiliated Company. In the event that he is
reemployed by an Employer, he shall immediately become a Participant in
this Plan.
Sec. 16.4 Action by Company. The Employers delegate to the Company the authority
to amend the Plan, remove the Trustee, or a Committee member, appoint a new
or additional Trustee or Committee member, or take all other actions
concerning the Plan without joinder or approval of the other Employers.
Sec. 16.5 Termination of Employer's Status as Affiliated Company. Termination of
an Employer's status as an Affiliated Company other than by merger or
liquidation into the Company shall terminate the Plan and the Trust
Agreement as adopted by such Employer unless, and except to the extent
that, the governing body of the Company shall adopt a resolution consenting
to the continuance of the Plan and the Trust Agreement as adopted by the
Employer, specifying conditions therefor, such as amendments to the Plan
and the Trust Agreement as adopted by the Employer and the investment in,
disposition or distribution of Parent Company Stock, and the governing body
of the Employer shall consent to and adopt such conditions, investments and
the like.
ARTICLE XVII
THE TRUSTEE
Sec. 17.1 Trust Fund. A Trust Fund has been created and will be maintained for
the purposes of the Plan, and the monies thereof will be invested in
accordance with the terms of the Trust Agreement which forms a part of the
Plan. All Employer contributions will be paid into the Trust Fund, and all
benefits under the Plan will be paid from the Trust Fund.
Sec. 17.2 Trustee's Duties. Except as otherwise specifically provided in the
Trust Agreement, the Trustee's obligations, duties and responsibilities are
governed solely by the terms of the Trust Agreement, reference to which is
hereby made for all purposes.
Sec. 17.3 Benefits Only from Trust. Any person having any claim under the Plan
will look solely to the assets of the Trust Fund for satisfaction. In no
event will any Employer or any of its officers, Employees, agents, members
of its board of directors, the Trustee, any successor trustee, or any
member of the Committee, be liable in their individual capacities to any
person whomsoever, under the provisions of the Plan or Trust Agreement,
absent a
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<PAGE>
breach of fiduciary responsibility determined pursuant to the applicable
provisions of ERISA.
Sec. 17.4 Trust Fund Applicable Only to Payment of Benefits. The Trust Fund will
be used and applied only in accordance with the provisions of the Plan, to
provide the benefits thereof, except as provided in Section 15.8 regarding
payment of administrative expenses, and no part of the corpus or income of
the Trust Fund will be used for, or diverted to, purposes other than for
the exclusive benefit of Participants and other persons thereunder entitled
to benefits.
Sec. 17.5 Texas Trust Code. Although it is intended that the foregoing powers of
the Trustee be applicable hereunder, it is also intended that all
provisions of the Texas Trust Code, and any amendments thereto, not
inconsistent with the above enumerated powers or other provisions of the
Plan, shall be applicable in the administration of the Trust Fund.
Sec. 17.6 Voting Rights. At each annual or special meeting of the stockholders
of Capital Southwest Corporation or by actions taken without a meeting, the
Trustee may vote or refrain from voting any and all shares of Parent
Company Stock held in the Trust Fund in such manner as deemed, in the
Trustee's sole discretion, to be in the best interest of Participants and
Beneficiaries. The Committee may from time to time direct the Trustee as to
the manner of voting such shares, and the Trustee shall follow such
instructions and shall bear no responsibility for the propriety of the
decisions of the Committee.
ARTICLE XVIII
INVESTMENTS
Sec. 18.1 Investment of Contributions and Trust Assets. All Employer
contributions in cash and any other cash received by the Trust Fund
attributable to Employer contributions under the Plan, including dividends,
will first be used to pay current obligations of the Trust Fund, and any
excess will be used either to pay other obligations of the Trust Fund, to
buy Parent Company Stock from holders of outstanding stock or newly issued
or treasury stock or to make other prudent investments; provided, however,
that at all times the Trustee shall attempt to invest 100% of the Trust
Fund assets in Parent Company Stock consistent with market availability or
other conditions. The Committee may from time to time direct the Trustee as
to the extent of investment in Parent Company Stock and the Trustee shall
follow such instructions and shall bear no responsibility for the propriety
of the investment decision of the Committee. All purchases of Parent
Company Stock shall be made at a price, or at prices, which in the judgment
of the Trustee do not exceed the fair market value of such shares of Parent
Company Stock, which may be above the quoted market price on a national
securities exchange or in the over-the-counter market. If no
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<PAGE>
current obligations of the Trust Fund are outstanding and unpaid and the
Trustee determines that it is in the best interest of the Trust Fund, the
Trustee may invest funds of the Trust Fund temporarily in securities issued
or guaranteed by the United States of America or any agency thereof, in
certificates of deposit, or in short-term commercial paper, or such funds
may be held temporarily in cash.
ARTICLE XIX
TOP HEAVY PROVISIONS
Sec. 19.1 Minimum Allocation Requirements. Notwithstanding the provisions of
Section 4.3, for any Year in which the Plan is a Top Heavy Plan, the
requirement for 1,000 Hours of Service shall not apply and Employer
contributions and forfeitures which are allocated to any Participant who on
the last day of the Year is a Non-Key Employee who has satisfied the
eligibility requirements of Section 2.1 shall not be less than the lesser
of (i) three percent of such Participant's Annual Compensation [as defined
in Section 5.1(o)(vi)] or (ii) the largest percentage of Employer
contributions, as a percentage of the first $200,000 (or, beginning April
1, 1988, such other amount equal to the Compensation Limitation as defined
in Section 1.5) of the Annual Compensation [as defined in Section
5.1(o)(vi)] of Participants who are Key Employees, allocated to any such
Participant who is a Key Employee for that Year; provided, however, if an
Employer maintains a defined benefit plan which designates this Plan to
satisfy Section 401 or 410 of the Code, (ii) above shall not apply.
Sec. 19.2 Adjustment to Limitation on Allocations. Notwithstanding the
provisions of Sections 5.1(o)(viii)(B)(1) and 5.1(o)(ix)(B)(1), beginning
with the first Year beginning after December 31, 1983 in which the Plan is
a Top Heavy Plan, the following provisions shall be applicable to Section
5.1 of the Plan:
(a) Section 5.1(o)(viii)(B)(1) shall be revised by substituting "1.0" for
"1.25" and the numerator of the fraction described in Section
5.1(o)(viii)(D)(1) shall be revised by substituting "$41,500" for
"$51,875" unless (i) the Plan would not be a Top Heavy Plan as defined
in Section 20.4(a) if "90%" were substituted for 60% in such
definition, and (ii) the minimum allocation requirements of Section
20.1 for a Participant who is a Non-Key Employee are satisfied and, in
applying such provisions, "four percent" is substituted for "three
percent;" and
(b) Section 5.1(o)(ix)(B)(1) shall be revised by substituting "1.0" for
"1.25" unless (i) the Plan would not be a Top Heavy Plan as defined in
Section 20.4(a) if "90%" were substituted for 60% in such definition,
and (ii) the minimum benefit requirements of Section 416(h)(2)(A) of
the Code are satisfied
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<PAGE>
for all participants in the defined benefit pension plan who
are Non-Key Employees.
Sec. 19.3 Vesting Schedule. Notwithstanding the provisions of Section 10.2,
beginning with the first Year in which the Plan is a Top Heavy Plan, the
following provisions shall be applicable to Section 10.2 of the Plan.
(a) Except as provided in Section 19.3(b) below, each Participant shall be
entitled (as a vested interest) to receive the greater of the vested
interest calculated pursuant to Article X or a percentage of the then
combined balance to his credit in his Parent Company Stock Account and
Other Investments Account determined in accordance with the following
schedule:
Years of Service (Vesting) Vested Interest
-------------------------- ---------------
Less than 3 0%
3 or more 100%
(b) The schedule in Section 19.3(a) above shall not apply to the
Individual Account of any Participant who does not perform an Hour of
Service after the Determination Date on which the Plan first became a
Top Heavy Plan; any such Participant's vested interest in his Parent
Company Stock Account and Other Investments Account shall be
determined by applying the schedule in Section 10.2 of the Plan as
applicable to the Plan prior to the Determination Date on which the
Plan first became a Top Heavy Plan.
Sec. 19.4 Definitions.
(a) "Top Heavy Plan" means the Plan for a Year beginning after December
31, 1983, if the Plan is the only plan maintained by an Employer and
the top heavy ratio as of the Determination Date exceeds 60%. The top
heavy ratio is a fraction, the numerator of which is the sum of the
present value of the Individual Accounts of all Key Employees as of
the Determination Date, the contributions due as of the Determination
Date, and distributions made within the five-year period immediately
preceding the Determination Date (including distributions under a
terminated plan which if it had not been terminated would have been
required to be included in an aggregation group), and the denominator
of which is a similar sum determined for all Employees. The top heavy
ratio shall be calculated without regard to (i) the Individual Account
of a Participant who is not a Key Employee but who was a Key Employee
in a prior Year, (ii) the Individual Account of any individual who has
not performed any services for an Employer at any time during the
five-year period ending on the Determination Date, and (iii) voluntary
deductible Employee contributions, if any. The top heavy ratio,
including distributions, rollover and transfers, to the
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extent such items must be taken into account, shall be calculated in
accordance with Section 416 of the Code and the regulations
thereunder. If an Employer maintains other qualified plans (including
a simplified employee pension plan) or has ever maintained one or more
defined benefit plans which have covered or could cover a Participant
in this Plan, this Plan is top heavy for a Year beginning after
December 31, 1983 only if it is part of the Required Aggregation
Group, and the top heavy ratio for both the Required Aggregation Group
and the Permissive Aggregation Group exceeds 60%. The top heavy ratio
shall be calculated as described above, taking into account all plans
within the aggregation group and with reference to Determination Dates
that fall within the same calendar year; provided that if a defined
benefit plan is included in the aggregation group, the present value
of accrued benefits (instead of account balances) of participants in
that plan shall be computed for purposes of calculating the top heavy
ratio. The accrued benefit under a defined benefit plan in both the
numerator and the denominator of the top heavy ratio are increased for
any distribution of an accrued benefit made in the five-year period
ending on the Determination Date. The accrued benefit of a Participant
other than a Key Employee shall be determined under (i) the method, if
any, that uniformly applies for accrual purposes under all defined
benefit plans maintained by the Employer, or (ii) if there is no such
method, as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional rule of Section
411(b)(1)(C) of the Code. The value of account balances and the
present value of accrued benefits will be determined as of the most
recent Allocation Date that falls within or ends with the 12-month
period ending on the Determination Date, except as provided in Section
416 of the Code and the Treasury Regulations thereunder for the first
and second plan years of a defined benefit plan. The actuarial
assumptions (interest rate and mortality only) used by the actuary
under the defined benefit plan shall be used to calculate the present
value of accrued benefits from the defined benefit plan.
(b) "Determination Date" means for any Year the Anniversary Date of the
preceding Year, or in the case of the first Year of the Plan, the
Anniversary Date of that Year.
(c) "Required Aggregation Group" means (1) each qualified plan of an
Employer in which at least one Key Employee participates, and (2) any
other qualified plan of an Employer which enables a plan described in
(1) to meet the requirements of Sections 401(a)(4) or 410 of the Code.
(d) "Permissive Aggregation Group" means the Required Aggregation Group
plus any other qualified plans maintained by an Employer which, when
considered as a group with the Required Aggregation Group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of
the Code.
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IN WITNESS WHEREOF, the Company, acting by and through its duly
authorized officers, has caused this restated Plan to be executed as of the
day and year first above written.
THE RECTORSEAL CORPORATION
By
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Twelve Largest Investments--March 31, 1996
PALM HARBOR HOMES, INC. $71,086,000
- --------------------------------------------------------------------------------
Palm Harbor Homes, Dallas, Texas, is an integrated manufactured housing
company, building, retailing and financing homes produced in 14 plants in
Alabama, Arizona, Florida, North Carolina, Ohio, Oregon and Texas and sold in 34
states through over 500 independent dealers and 44 company-owned or affiliated
retail superstores. Palm Harbor manufactures high-quality, energy efficient,
site-delivered homes designed to meet the need for affordable housing,
particularly among retirees and newly-formed families.
During the year ended March 31, 1996, Palm Harbor reported earnings of
$14,978,000 ($1.47 per share) on net sales of $417,214,000, compared with
earnings of $11,225,000 ($1.16 per share) on net sales of $330,547,000 in the
previous year. The March 29, 1996 closing Nasdaq bid price of Palm Harbor's
common stock was $25.25 per share.
At March 31, 1996, the $10,931,955 investment in Palm Harbor by Capital
Southwest and its subsidiary was valued at $71,086,000 ($17.68 per share)
consisting of 4,021,820 restricted shares of common stock, representing a
fully-diluted equity interest of 37.0%.
SKYLAWN CORPORATION $45,000,000
- --------------------------------------------------------------------------------
Skylawn Corporation owns and operates cemeteries, mausoleums and
mortuaries. Skylawn's operations, all of which are in California, include a
mausoleum and an adjacent mortuary in Oakland and cemeteries and mausoleums in
San Mateo, Hayward, Sacramento and Napa, the latter three of which also have
mortuaries at the cemetery sites. All of these entities are well established and
have provided funeral services to their respective communities for many years.
For the fiscal year ended March 31, 1996 Skylawn Corporation earned
$4,462,000 on revenues of $22,939,000. in the previous year, Skylawn earned
$3,292,000 on revenues of $21,005,000.
At March 31,1996, Capital Southwest owned 100% of Skylawn Corporation's
common stock, which had a cost of $4,510,400 and was valued at $45,000,000.
ALAMO GROUP INC. $38,209,000
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Alamo Group Inc. is a leading designer, manufacturer and marketer of
heavy-duty, tractor-mounted mowing and growth maintenance equipment. Founded in
1969, Alamo Group operates 10 manufacturing facilities and serves agricultural,
governmental and commercial markets in the U.S. and Europe.
For the year ended December 30,1995, Alamo reported consol idated earnings
of $11,615,000 ($1.34 per share) on net sales of $163,852,000, compared with
earnings of $9,166,000 ($1.20 per share) on net sales of $119,643,000 in the
previous year. The March 29,1996 closing NYSE market price of Alamo's common
stock was $17.875 per share.
At March 31,1996, the $575,000 investment in Alamo by Capital Southwest and
its subsidiary was valued at $38,209,000, consisting of 2,660 000 restricted
shares of common stock valued at $38,038,000 ($14.30 per sihare) and warrants
valued at $171,000, representing a fully-diluted equity interest of 26.8% at an
anticipated cost of $1,575,000.
THE RECTORSEAL CORPORATION $28,000,000
- --------------------------------------------------------------------------------
The RectorSeal Corporation, with plants in Houston and Mount Vernon, New
York, manufactures specialty chemical products including pipe thread sealants,
firestop sealants, plastic solvent cements and other formulations for plumbing
and industrial applications. These products are distributed through over 6,000
supply firms. RectorSeal's subsidiary, Jet-Lube, Inc., with plants in Houston,
England and Canada, produces anti-seize compounds, specialty lubricants and
other products used in industrial and oil field applications. RectorSeal also
owns a 20% equity interest in The Whitmore Manufacturing Company (described
subsequently).
During the fiscal year ended March 31,1996, The RectorSeal Corporation
reported consolidated earnings of $3,014,000 on revenues of $29,290,000,
compared with earnings of $2,423,000 on revenues of $25,121,000 in the previous
year. RectorSeal's earnings do not reflect its 20% equity in The Whitmore
Manufacturing Company.
At March 31,1996, Capital Southwest owned 100% of RectorSeal's common stock
having a cost of $52,600 and a value of $28,000,000.
5
<PAGE>
PETSMART, INC. $11,857,737
- --------------------------------------------------------------------------------
PETsMART Inc., Phoenix, Arizona, is the nation's leading operator of
superstores specializing in pet food, pet supplies and pet services, including
full scale veterinary care. PETsMART currently operates 283 superstores in 33
states.
For the year ended January 28,1996, PETsMART reported a net loss of
$2,803,000 ($0.07 per share) on net sales of $1,030,663,000, compared with a net
loss of $9,830,000 ($0.22 per share) on net sales of $817,555,000 in the
previous year. The March 29,1996 closing Nasdaq bid price of PETsMART's common
stock was $36.25 per share.
At March 31,1996, Capital Southwest and its subsidiary owned 327,110
unrestricted shares of PETsMART common stock, having a cost of $2,878,733 and a
market value of $11,857,737 ($36.25 per share).
AMERICAN HOMESTAR CORPORATION $7,961,210
- --------------------------------------------------------------------------------
American Homestar Corporation, Webster, Texas, builds, retails and finances
manufactured housing, producing homes from its three plants in the Dallas-Fort
Worth area and retailing its products through 43 company-owned retail sales
centers and more than 100 independently-owned retail centers in Texas, New
Mexico, Oklahoma, Louisiana, Colorado, Arkansas and Kansas.
For the year ended May 31,1995, American Homestar reported net income of
$7,188,000 ($0.98 per share) on net sales of $187,653,000. Unaudited earnings
for the nine months ended February 29, 1996 were $6,423,000 ($0.83 per share)
compared with $4,721,000 ($0.66 per share) during the same period in the
preceding year. The March 29,1996 closing Nasdaq bid price of American
Homestar's common stock was $19.875 per share.
At March 31,1996, Capital Southwest and its subsidiary owned 400,564
unrestricted shares of American Homestar common stock, having a cost of
$3,405,824 and a market value of $7,961,210 ($19.875 per share), representing a
fully-diluted equity interest of 4.3%.
ENCORE WIRE CORPORATION $6,599,000
- --------------------------------------------------------------------------------
Encore Wire Corporation, McKinney, Texas, manufactures a broad line of
copper electrical wire and cable including non-metallic sheathed cable,
underground feeder cable and THHN cable for residential, commercial and
industrial construction. Encore's products are sold through large-volume
distributors and building materials retailers.
For the year ended December 31, 1995, Encore reported a net loss of
$545,000 ($0.08 per share) on net saies of $151,308,000, compared with net
income of $6,670,000 ($0.98 per share) on net sales of $122,698,000 in the
previous year. The March 29,1996 closing Nasdaq bid price of Encore's common
stock was $9.00 per share.
At March 31,1996, the $4,100,000 investment in 1,122,000 shares of Encore's
restricted common stock by Capital Southwest and its subsidiary was valued at
$6,599,000 (an average of $5.88 per share), representing a fully diluted equity
interest of 14.8%.
SDI Holding Corp. $6,000,000
- --------------------------------------------------------------------------------
SDI Holding Corp., Glasgow, Delaware, through its wholly-owned subisidiary,
Sterling Diagnostic Imaging, Inc., manufactures and markets on a worldwide
basis, x-ray medical imaging film, intensifying screens, cassettes, film
development chemicals and related equipment and services. A subsidiary, Direct
Radiography Corp., is developing a direct radiography system, scheduled for 1998
introduction, which will capture, store and transmit conventional x-ray images
in a digital format.
In March 1996, Capital Southwest invested $6,000,000 in the common stock of
SDI Holding Corp., which purchased the assets of the Diagnostic Imaging busi
ness from E.I. DuPont de Nemours for approximately $396 mi11ion. The operations
acquired by SDI recorded 1995 sales of $539 million.
At March 31,1996, Capital Southwest's $6,000,000 investment in common stock
of SDI Holding Corp. was valued at cost and represents a fully-diluted equity
interest of 12.0%.
6
<PAGE>
THE WHITMORE MANUFACTURING COMPANY $5,728,000
- --------------------------------------------------------------------------------
The Whitmore Manufacturing Company, with plants in Rockwall, Texas and
Cleveland, Ohio, manufactures specialty lubricants for extreme-pressure,
lubrication of heavy equipment used in surface mining and in other industries
and produces transit coatings for the automobile industry. Whitmore's
subsidiary, Hanson-Loran Company, Inc., Buena Park, California, produces
floor finishing compounds, supplies and equipment for supermarkets.
During the fiscal year ended March 31,1996, Whitmore reported a net loss of
$611,000 on net sales of $16,829,000, compared with net income of $471,000 on
net sales of $17,861,000 in the previous year. The company is owned 80% by
Capital Southwest and 20% by Capital Southwest's subsidiary, The RectorSeal
Corporation (described on a previous page).
At March 31,1996, the direct investment in Whitmore by Capital Southwest
was valued at $5,728,000 and had a cost of $2,528,000, consisting of $928,000 in
10% subordinated notes and $1,600,000 in common stock. Our Company's direct and
indirect equity in Whitmore's loss for the year ended March 31,1996 was
$611,000.
CHEROKEE COMMUNICATIONS, INC. $5,000,000
- --------------------------------------------------------------------------------
Cherokee Communications, Inc., Jacksonville, Texas, is one of the largest
private payphone companies in the United States, owning and servicing
approximately 11,700 payphones installed in convenience stores and other
high-traffic areas located primarily in Texas, New Mexico, Montana and Utah.
For the year ended September 30,1995, Cherokee reported net income of
$2,220,000, including a non-recurring gain of $651,000 on net sales of
$31,592,000, compared with net income of $603,000 on net sales of $27,865,000 in
the previous year.
At March 31,1996, the $2,400,000 investment in 6% cumulative convertible
preferred stock by Capital Southwest and its subsidiary was valued at $5,000,000
and represents a fully-diluted equity interest of 21.0%.
Mail-Well, Inc. $4,136,000
- --------------------------------------------------------------------------------
Mail-Well, Inc., Englewood, Colorado, is a leading envelope manufacturer
and printer in the United States and Canada, specializing in customized
envelopes and high-impact color printing. Mail-Well operates 43 plants and
numerous sales offices throughout North America.
For the year ended December 31, 1995, Mail-Well reported earnings of
$10,373,000 ($1.36 per share) on net sales of $596,792,000. The March 29,1996
closing Nasdaq bid price of Mail-Well's common stock was $7.75 per share.
At March 31,1996, the $2,889,010 investment in Mail-Well by Capital
Southwest was valued at $4,136,000 (an average of $5.96 per share) consisting of
694,063 restricted shares of common stock, representing a fully-diluted equity
interest of 5.3%.
TELE-COMMUNICATIONS, INC.--TCI GROUP $3,33O,OOO
- --------------------------------------------------------------------------------
Tele-Communications, Inc.--TCI Group, Englewood, Colorado, is principally
engaged in the construction, acquisition, ownership and operation of
cable television systems end the provision of satellite-delivered video
entertainment information and home shopping programming services to various
video distribution media, principally cable television systems in 49 states.
For the year ended December 31,1995, Tele-Communications, Inc.--TCI Group
reported a net loss of $178,000,000 ($0.16 per share) on revenues of
$5,384,000,000, compared with net income of $99,000,000 on revenues of
$4,269,000,000 in the previous year. The March 29,1996 closing Nasdaq bid price
of TeleCommunications, Inc.--TCI Group Series A common stock was $18.50 per
share.
At March 31,1996, Capital Southwest owned 180,000 unrestricted shares of
Series A common stock of Tele-Communications, Inc.--TCI Group having a cost of
$68 and a market value of $3,330,000 ($18.50 per share).
7
<PAGE>
Portfolio of Investments--March 31, 1996
<TABLE>
<CAPTION>
Company Equity (a) Investment (b) Cost Value (c)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*ALAMO GROUP INC.(d) 26.8% 2,660,000 shares common stock $ 575,000 $38,038,000
San Antonio, Texas (acquired 4-1-73 and (7-18-78)
Heavy-duty, tractor-mounted Warrant to purchase 62,500 shares
mowing and growth maintenance of common stock at $16.00 per share,
equipment for agricultural expiring 2000 (acquired 11-25-91) - 171,000
and governmental markets. ---------- ------------
575,000 38,209,000
- ---------------------------------------------------------------------------------------------------------------
ALL COMPONENTS, INC.(d) 30.0% 14% subordinated debenture, due 1999
Addison, Texas (acquired 9-16-94) 150,000 shares 600,000 600,000
Distributor of memory and other Series A convertible preferred
components to personal com- stock (acquired 9-16-94) 150,000 150,000
puter manufacturers, retailers 450,000 shares Series B preferred
and value-added resellers. stock (acquired 9-16-94) 450,000 450,000
------------ ----------
1,200,000 1,200,000
- ---------------------------------------------------------------------------------------------------------------
**AMERICAN HOMESTAR CORPORATION (d) 4.3% 400,564 shares common stock
Webster, Texas (acquired 8-31-93, 7-12-94 and
Manufacturing, retailing and 3-28-96) 3,405,824 7,961,210
financing of manufactured
housing sold n a seven-state
market area.
- ---------------------------------------------------------------------------------------------------------------
BALCO, INC.(d) 83.9% 14% subordinated debentures, payable
Wichita, Kansas 1997 to 2001 (acquired 8-13-91) 400,000 400,000
Specialty architectural products 14% subordinated debenture, payable
used in the contruction and 1997 to 2001, last maturing $250,000
remodeling of commerical and convertible into 250,000 shares of
institutional buildings. common stock at $1.00 per share
(acquired 6-1-91) 800,000 800,000
110,000 shares common stock and
60,920 shares Class B non-voting
stock (acquired 10-25-83) 170,920 170,920
Warrants to purchase 85,000 shares
of common stock at $2.40 per share,
expiring 2001 (acquired 8-13-91) - -
---------- -----------
1,370,920 1,370,920
- ---------------------------------------------------------------------------------------------------------------
CHEROKEE COMMUNICATIONS, INC. (d) 21.0% 240,000 shares 6% cumulative pre-
Jacksonville, Texas ferred stock, convertible into
Owns and services approximately 2,218,000 shares of common stock at
11,700 payphones. $1.08 per share (acquired 12-31-92) 2,400,000 5,000,000
- ---------------------------------------------------------------------------------------------------------------
*DATA RACE, INC. (d) 8.0% 475,950 shares common stock (acqu-
San Antonio, Texas ired 10-7-92) 1,699,485 1,011,000
Statistical multiplexers, custom Option to purchase 35,507 shares of
data/fax/voice modems and local common stock at $.67 per share,
and wide area network connectivity expiring 2000 (acquired 12-31-91) 71,015 52,000
products. ----------- -----------
1,770,500 1,063,000
- ---------------------------------------------------------------------------------------------------------------
* Publicly-owned company
** Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
- ---------------------------------------------------------------------------------------------------------------
DENNIS TOOL COMPANY (d) 46.1% 98,687 shares common stock (acqu- $ 330,000 $1,200,000
Houston, Texas ired 3-7-94)
Polycrystalline diamond compacts
(PDCs) used in oil field drill
bits and in mining and industrial
applications.
- ---------------------------------------------------------------------------------------------------------------
DYMETROL COMPANY, INC. (d) 33.8% 15% subordinated notes, payable
Hockessin, Delaware quarterly 1998 to 1999 (acquired
Nylon strapping for packaging 5-27-93) 774,379 774,379
applications and copolyester 19,912 shares common stock, non-
elastomeric tape used in auto- voting (acquired 5-27-93) 199,115 199,115
mobiles. ------------ ------------
973,494 973,494
- ---------------------------------------------------------------------------------------------------------------
*ENCORE WIRE CORPORATION (d) 14.8% 1,122,000 shares common stock (ac-
McKinney, Texas quired 7-16-92, 3-15-94 and 4-28-94) 4,100,000 6,599,000
Electrical wire and cable for
residential and commerical use.
- ---------------------------------------------------------------------------------------------------------------
*FMC CORPORATION (d) (1% **6,430 shares common stock (acq-
Chicago, Illinois uired 6-6-86) 123,777 483,053
Machinery and chemicals in
diversified product areas.
- ---------------------------------------------------------------------------------------------------------------
*FRONTIER CORPORATION (d) (1% **31,338 shares common stock (acq-
Rochester, New York uired 12-20-95) 78,346 987,147
Diversified telecommunications
company.
- ---------------------------------------------------------------------------------------------------------------
LIL' THINGS, INC. (d) 7.3% 2,250,000 shares Class A cumulative
Arlington, Texas preferred stock, convertible into
Retail chain of superstores 2,250,000 shares of commmon stock
selling products for children at $1.00 per share
from birth to six years. (acquired 2-12-93 and 12-1-93) 2,250,000 1,125,000
666,666 shares Class B cumulative
preferred stock, convertible into
746,268 shares of common stock at
$1.34 per share (acquired 9-15-94) 1,000,000 373,134
617,410 shares Class C cumulative
preferred stock, convertible into
617,410 shares of common stock at
$1.20 per share (acquired 12-4-95) 740,894 308,706
Warrants to purchase 58,842 shares
of common stock at $.01 per share,
expiring 2000, (acquired 11-6-95) - 28,832
------------- -------------
3,990,894 1,835,672
- -----------------------------------------------------------------------------------------------------------------
*MAIL-WELL, INC. 5.3% 694,063 shares common stock (acqu-
Englewood, Colorado ired 2-18-94, 12-14-94, and 7-27-95) 2,889,010 4,136,000
Customized envelopes and
high-impact color printing.
- -----------------------------------------------------------------------------------------------------------------
* Publicly-owned company
** Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
- ---------------------------------------------------------------------------------------------------------------
*MYLAN LABORATORIES INC. (d) (1% **128,286 shares common stock
Pittsburgh, Pennsylvania (acquired 11-20-91) $ 400,000 $2,694,006
Proprietary and generic phar-
maceutical products.
- ------------------------------------------------------------------------------------------------------------------
PTS HOLDINGS, INC. 21.6% 200,000 shares Class B non-voting
Anaheim, California common stock (acquired 11-21-94) 2,000,000 2,000,000
Power systems for military
and commercial applications.
- ------------------------------------------------------------------------------------------------------------------
*PALM HARBOR HOMES, INC. (d) 37.0% 4,021,820 shares common stock (acq-
Dallas, Texas uired 1-3-85, 3-31-88, and 7-31-95) 10,931,955 71,086,000
Integrated manufacturing, ret-
ailing and financing of man-
ufactured housing sold in
34 states.
- ------------------------------------------------------------------------------------------------------------------
*PETSMART, INC. (d) (1% **327,110 shares common stock (acq-
Phoenix, Arizona uired 6-1-95) 2,878,733 11,857,737
Retail chain of superstores
selling pet foods, supplies
and services.
- ------------------------------------------------------------------------------------------------------------------
THE RECTORSEAL CORPORATION 100.0% 27,907 shares common stock (acqu-
Houston, Texas ired 1-5-73 and 3-31-73) 52,600 28,000,000
Chemical specialty products for
industrial, construction and oil
field applications; owns 20% of
Whitmore Manufacturing.
- ------------------------------------------------------------------------------------------------------------------
SDI HOLDING CORP. 12.0% 60,000 shares common stock (acqu-
Glasgow, Delaware ired 3-26-96) 6,000,000 6,000,000
Owns Sterling Diagnostic Imaging,
a manufacturer of x-ray medical
imaging film and direct radio-
graphy systems.
- ------------------------------------------------------------------------------------------------------------------
SKYLAWN CORPORATION 100.0% 1,449,026 shares common stock (acqu-
Hayward, California ired 7-16-69) 4,510,400 45,000,000
Cemeteries, mausoleums and
mortuaries located in northern
California.
- ------------------------------------------------------------------------------------------------------------------
*SPRINT CORPORATION (d) (1% **36,000 shares common stock (acq-
Westwood, Kansas uired 6-20-84) 503,645 1,368,000
Provider of long-distance and
local telephone service.
- ------------------------------------------------------------------------------------------------------------------
* Publicly-owned company
** Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
- ---------------------------------------------------------------------------------------------------------------
*TECNOL MEDICAL PRODUCTS, INC. (1% **183,764 shares common stock (acq-
Fort Worth, Texas uired 2-7-92 and 5-11-94) $2,396,926 $3,215,870
Disposable medical products
marketed to health-care
facilities.
- ------------------------------------------------------------------------------------------------------------------
*TELE-COMMUNICATIONS, INC.-TCI Group (1% **180,000 shares Series A common
Englewood, Colorado stock (acquired 6-3-69) 68 3,330,000
Operation of the nation's largest
cable television system.
- ------------------------------------------------------------------------------------------------------------------
*TELE-COMMUNICATIONS, INC.-Liberty (1% **45,000 shares Series A common
Media Group stock (acquired 8-4-95) - 1,175,625
Englewood, Colorado
Production and distribution of
cable television programming
services.
- ------------------------------------------------------------------------------------------------------------------
TEXAS SHREDDER, INC. (d) 45.7% 14% subordinated debentures, pay-
San Antonio, Texas able 1997 to 1999 (acquired 3-6-91) 1,125,000 1,125,000
Design and manufacture of heavy- 3,000 shares Series A preferred
duty shredder systems for stock (acquired 3-6-91) 300,000 300,000
recycling steel and other materials 750 shares Series B preferred stock,
from junk automobiles. convertible into 7,500 shares of
common stock at $10.00 per share
(acquired 3-6-91) 75,000 1,250,000
------------ -----------
1,500,000 2,675,000
- ------------------------------------------------------------------------------------------------------------------
*TRITON ENERGY CORPORATION (d) (1% **6,022 shares common stock (acqu-
Dallas, Texas ired 12-15-86) 144,167 335,727
Oil and gas exploration
and development.
- ------------------------------------------------------------------------------------------------------------------
VARIX CORPORATION (d) 100.0% 12% promissory notes due 1997 (acq-
Richardson, Texas uired 12-5-86,3-21-88 and 1-31-90) 566,486 300,000
Formerly developed software 1,514,566 shares preferred stock,
for computer-aided design of convertible into 3 shres of common
electronic circuits. stock at $171,667 per share (acqu-
ired 6-1-84 and 3-21-88) 515,000 -
37 shares common stock (acquired
6-2-86, 3-21-88 and 1-31-90) 100,000 -
------------ ------------
1,181,486 300,000
- ------------------------------------------------------------------------------------------------------------------
WESTMARC COMMUNICATIONS, INC. - 21 shares Series C preferred stock
Denver, Colorado (acquired 1-3-90) - 508,000
Cable television systems and
microwave relay systems.
- ------------------------------------------------------------------------------------------------------------------
* Publicly-owned company
** Unrestricted securities as defined in Note (b)
<PAGE>
Company Equity (a) Investment (b) Cost Value (c)
- ------------------------------------------------------------------------------------------------------------------
THE WHITMORE MANUFACTURING 80.0% 10% subordinated note payable 1997
COMPANY (d) to 1998 (acquired 8-31-79) $ 928,000 $ 928,000
Rockwall, Texas 80 shares common stock (acquired
Specialized mining and 8-31-79) 1,600,000 4,800,000
industrial lubricants; ------------- -------------
automotive transit coatings; 2,528,000 5,728,000
floor-finishing compounds and
equipment.
- ------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS 40.0% Amfibe, Inc. (d)-2,000 shares Class
B non-voting common stock (acq-
uired 6-15-94) 200,000 200,000
98.8% Humac Company-1,041,000 shares
common stock (acquired 1-31-75 and
12-31-75) - 150,000
(1% *360 Communications Company
(d) - **12,000 shares common stock
(acquired 3-7-96) 108,355 288,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS OF CAPITAL SOUTHWEST CORPORATION $41,172,565 $178,183,590
TOTAL INVESTMENTS OF CAPITAL SOUTHWEST VENTURE CORPORATION 17,371,535 78,746,871
------------- --------------
TOTAL INVESTMENTS $58,544,100 $256,930,461
============= ==============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Publicly-owned company
** Unrestricted securities as defined in Note (b)
Notes to Portfolio of Investments
(a) The percentages in the "Equity" column express the potential equity
interests held by the Company and Capital Southwest Venture Corporation ("CSVC")
in each issuer. Each percentage represents the amount of the issuer's common
stock the Company and CSVC own or can acquire as a percentage of the issuer's
total outstanding common shares, plus shares reserved for a11 outstanding
warrants, convertible securities and employee stock options. The symbol "(1%"
indicates that the Company and CSVC hold a potential equity interest of less
than one percent.
(b) Unrestricted securities (indicated by *) are freely marketable securities
having readily available market quotations. All other securities are restricted
securities which are subject to one or more restrictions on resale and are not
freely marketable. At March 31, 1996, restricted securities represented
approximately 87% of the value of the consolidated investment portfolio (78% of
CSVC's portfolio).
(c) Under the valuation policy of the Company and CSVC, unrestricted securities
are valued at the closing sale price for listed securities and at the closing
bid price for over-the-counter securities on the valuation date. Restricted
securities, including securities of publicly-owned companies which are subject
to restrictions on resale, are valued at fair value as determined by the Board
of Directors. Fair value is considered to be the amount which the Company or
CSVC may reasonably expect to receive for portfolio securities if such
securities were sold on the valuation date. Valuations as of any particular
date, however, are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities.
Among the factors considered by the Board of Directors in determining the fair
value of restricted securities are the financial condition and operating results
of the issuer, the long-term potential of the business of the issuer, the market
for and recent sales prices of the issuer's securities, the values of similar
securities issued by companies in similar businesses, the proportion of the
issuer's securities owned by the Company and CSVC, the nature and duration of
resale restrictions and the nature of any rights enabling the Company or CSVC to
require the issuer to register restricted securities under applicable securities
laws. In determining the fair value of restricted securities, the Board of
Directors considers the inherent value of such securities without regard to the
restrictive feature and adjusts for any diminution in value resulting from
restrictions on resale.
12
<PAGE>
Notes to Portfolio of Investments (continued)
(d)Investments of CSVC,excluding the foliowmg which are owned directly by the
Company and listed with those owned by CSVC:
Company Security Cost Value
- -------------------------------------------------------------------------------
Alamo Group, Inc. Warrant $ 0 171,000
American Homestar Corp. 124,289 common shares 1,658,000 2,470,244
Balco, Inc. 14% subordinated debenture 116,000 116,000
Balco, Inc. 55,000 common shares 55,000 55,000
Balco, Inc. Warrant 0 0
Cherokee Communications, Inc 110,000 preferred shares 1,100,000 2,291,667
Data Race, Inc 176,105 common shares 480,116 374,000
Data Race, Inc Option 71,015 52,000
Dennis Tool Company 4,199 common shares 30,000 51,058
Dymetrol Company, Inc. 15% subordinated note 77,448 77,448
Dymetrol Company, Inc. 1,991 common shares 19,911 19,911
Encore Wire Corporation 300,000 common shares 3,500,000 2,160,000
LiL'Things, Inc. 1,125,000 CI A
preferred shares 1,125,000 562,500
LiL'Things, Inc. 333,333 CI B
preferred shares 500,000 186,567
LiL'Things, Inc. 308,705 CI C
preferred shares 370,447 154,353
LiL' Things, Inc. Warrant 0 14,416
Palm Harbor Homes, Inc 3,642,303 common shares 10,820,624 64,378,000
PETsMART Inc. 171,005 common shares 1,500,000 6,198,931
Texas Shredder, Inc. 14% subordinated debenture 225,000 225,000
Texas Shredder, Inc. 750 preferred shares 75,000 310,000
The Whitmore Mfg. Co. 80 common shares 1,600,000 4,800,000
(e) Agreements between certain issuers and the Company or CSVC provide that the
issuers will bear substantially all costs in connection with the disposition of
common stocks, including those costs involved in registration under the
Securities Act of 1933 but excluding underwriting discounts and commissions.
These agreements, which cover common stocks owned at March 31, 1996 and common
stocks which may be acquired thereafter through exercise of warrants and
conversion of debentures and preferred stocks, apply to restricted securities of
all issuers in the investment portfolio of the Company and CSVC except
securities of the following issuers, which are not obligated to bear
registration costs: Humac Company, Skylawn Corporation and The Whitmore
Manufacturing Company.
(f) The descriptions of the companies and ownership percentages shown in the
portfolio of investments were obtained from published reports and other sources
believed to be reliable, are supplemental and are not covered by the report of
independent auditors. Acquisition dates indicated are the dates specific
securities were acquired. Certain securities were received in exchange for or
upon conversion or exercise of other securities previously acquired.
Portfolio Changes During the Year
New Investments and Additions to Previous Investments
Amount
----------
American Homestar Corporation $ 1,428,000
Frontier Corporation 78,346
LiL' Things, Inc 1,023,338
Mail-Well, Inc 479,072
Palm Harbor Homes, Inc 10,398,060
SDI HoldingCorp 6,000,000
- --------------- ----------
$19,406,816
==========
<PAGE>
Dispositions
Amount
Cost Received
-------- -----------
CrossTies Software Company $1,100,000 $ 0
General Communication, Inc O 105,098
Intelligent Electronics, Inc 1,217,667 478,375
MESC Holdings, Inc 2,500,000 20,454,600
PETsMART, Inc 121,266 432,100
---------- -----------
$4,938,933 $21,470,173
========== ===========
Repayments Received . . . . . . . . . . . . . . . . . . . . $ 5,515,824
===========
13
<PAGE>
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Capital Southwest Corporation and Subsidiary
Consolidated Statements of Financial Condition
March 31
---------------------
1996 1995
------ ------
Assets
Investments at market or fair
value (Notes 1 and 2)
Companies more than 25% owned
(Cost: 1996 - $21,480,361,
1995 - $15,147,834) ................... $191,043,920 $143,715,000
Companies 5% to 25% owned
(Cost: 1996 - $18,750,404,
1995 - $17,030,438) ................... 19,633,672 31,459,238
Companies less than 5% owned
(Cost: 1996 - $18,313,335,
1995 - $17,551,303) ................... 46,252,869 27,586,335
------------ -----------
Total investments
(Cost: 1996 - $58,544,100,
1995 - $49,729,575) ................... 256,930,461 202,760,573
Cash and cash equivalents ................ 67,045,185 8,372,976
Receivables .............................. 285,002 243,633
Other assets (Note 8) .................... 2,711,802 2,434,231
------------ ------------
Totals $326,972,450 $213,811,413
============ ============
March 31
-------------------
1996 1995
----- -----
Liabilities and Shareholders' Equity
Note payable to bank (Note 4) $ 50,000,000 $ -
Accrued interest and other
liabilities (Note 8) . . 1,669,839 1,490,506
Income taxes payable 6,050,730 -
Deferred income taxes (Note 3) 69,204,128 53,951,003
Subordinated debentures (Note 5) 11,000,000 11,000,000
----------- -----------
Total liabilities 137,924,697 66,441,509
----------- -----------
Shareholders' equity
(Notes 3 and 6)
Common stock, $1 par value: authorized,
5,000,000 shares; issued,
4,204,416 shares at March 31, 1996,
and 4,172,416 shares at
March 31, 1995 . . . . . . . . . . . . 4,204,416 4,172,416
Additional capital . . . . . . . . . . . 4,813,121 4,270,371
Undistributed net investment income . . . 4,490,374 3,889,288
Undistributed net realized gain on
investments . . . . . . . . . . . . . . . 53,307,782 42,287,133
Unrealized appreciation of investments--
net of deferred income taxes . . . . . . . 129,265,362 99,783,998
Treasury stock--at cost
(437,365 shares). . . . . . . . . . . . . . (7,033,302) (7,033,302)
------------ ------------
Net assets at market or fair value,
equivalent to $50.18 per share on the
3,767,051 shares outstanding at
March 31,1996, and $39.46 per share
on the 3,735,051 shares out standing
at March 31,1995 189,047,753 147,369,904
------------- ------------
Totals ............................. $326,972,450 $213,811,413
============ ============
See Notes to Consolidated Financial Statements
<PAGE>
Capital Southwest Corporation and Subsidiary
Consolidated Statements of Operations
Years Ended March 31
----------------------------------------
1996 1995 1994
--------- ---------- ----------
Investment income (Note 9):
Interest $ 2,018,308 $ 1,952,557 $ 2,096,346
Dividends 3,597,004 2,629,384 2,909,389
Management and directors' fees 561,950 523,750 498,000
--------- --------- ---------
6,177,262 5,105,691 5,503,735
--------- --------- ---------
Operating expenses:
Interest 1,700,003 1,394,266 1,444,609
Salaries 1,112,640 913,555 857,132
Net pension expense (benefit)
(Note 8) (208,701) (241,430) (239,532)
Other operating expenses 642,955 541,243 483,636
--------- --------- ---------
3,246,897 2,607,634 2,545,845
--------- --------- ---------
Income before income taxes 2,930,365 2,498,057 2,957,890
Income tax expense(Note3) 75,448 51,404 88,293
- -------- --------- ---------
Net investment income $ 2,854,917 $ 2,446,653 $ 2,869,597
=========== =========== ===========
Proceeds from disposition
of investments $21,470,173 $ 1,702,276 $ 333,571
Cost of investments sold (Notel) 4,938,933 1,483,194 1,004,592
----------- ----------- -----------
Realized gain (loss) on
investments before
income taxes (Note 9) 16,531,240 219,082 (671,021)
Income tax expense (benefit) 5,357,215 76,679 (196,418)
----------- ----------- -----------
Net realized gain(loss)
on investments 11,174,025 142,403 (474,603)
----------- ----------- -----------
Increase in unrealized appreciation
of investments before income taxes
and distributions 54,619,668 20,898,731 18,979,514
Increase in deferred income taxes
on appreciation of investments
(Note 3) 15,874,000 7,315,000 7,820,000
----------- ----------- -----------
Net increase in unrealized
appreciation of investments
before distributions 38,745,668 13,583,731 11,159,514
----------- ----------- -----------
Net realized and unrealized gain
on investments before distributions $49,919,693 $ 13,726,134 $ 10,684,911
=========== ============ ============
Increase in net assets from
operations before distributions $52,774,610 $ 16,172,787 $ 13,554,508
=========== ============ ============
See Notes to Consolidated Financial Statements
15
<PAGE>
Capital Southwest Corporation and Subsidiary
Consolidated Statements of Changes in Net Assets
Year Ended March 31
-----------------------------------
1996 1995 1994
------- ------- ------
Operations
Net investment income..................$ 2,854,917 $ 2,446,653 $ 2,869,597
Net realized gain (loss) on investments 11,174,025 142,403 (474,603)
Net increase in unrealized appreciation
of investments before distributions .. 38,745,668 13,583,731 11,159,514
---------- ---------- ----------
Increase in net assets from
operations before distributions ...... 52,774,610 16,172,787 13,554,508
Distributions from:
Undistributed net investment income.... (2,253,831) (2,241,031) (2,227,631)
Undistributed net realized gain on
investments.......................... (153,376) - -
Unrealized appreciation of investments. (9,264,304) - -
Capital share transactions
Exercise of employee stock options..... 574,750 384,750 272,000
------- ------- -------
Increase in net assets 41,667,849 14,316,506 11,598,877
Net assets, beginning of year...........147,369,904 133,053,398 121,454,521
------------ ----------- -----------
Net assets, end of year................$189,047,753 $147,369,904 $133,053,398
============ ============ ============
See Notes to Consolidated Financial Statements
<PAGE>
Capital Southwest Corporation and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended March 31
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Increase in net assets from operations before distributions.....................$ 52,774,610 $16,172,787 $13,554,508
Adjustments to reconcile increase in net assets from operations before
distributions to net cash provided by operating activities:
Depreciation and amortization.................................................. 33,439 42,623 40,392
Net pension benefit............................................................ (208,701) (241,430) (239,532)
Net realized and unrealized gain on investments................................ (49,919,693) (13,793,624) (10,764,777)
(Increase) decrease in receivables............................................. (41,369) 63,301 (15,270)
(Increase) decrease in other assets............................................ 28,950 (18,354) (54,849)
Increase in accrued interest and other liabilities............................. 48,075 7,092 23,995
Deferred income taxes.......................................................... 72,640 84,500 89,460
------ ------ ------
Net cash provided by operating activities....................................... 2,787,951 2,316,895 2,633,927
--------- --------- ---------
Cash flows from investing activities
Proceeds from disposition of investments........................................ 21,470,173 1,611,976 333,571
Purchases of securities......................................................... (19,406,816) (9,556,876) (10,679,997)
Maturities of securities........................................................ 5,515,824 574,625 1,635,500
--------- ------- ---------
Net cash provided (used) by investing activities................................ 7,579,181 (7,370,275) (8,710,926)
--------- ---------- ----------
Cash flows from financing activities
Increase (decrease) in note payable to bank.................................... 50,000,000 (75,000,000) 75,000,000
Repayment of subordinated debentures............................................ - (4,000,000) -
Distributions from undistributed net investment income.......................... (2,253,831) (2,241,031) (2,227,631)
Distributions from undistributed net realized gain on investments............... (15,842) - -
Proceeds from exercise of employee stock options................................ 574,750 384,750 272,000
------- ------- -------
Net cash provided (used) by financing activities ............................... 48,305,077 (80,856,281) 73,044,369
---------- ----------- ----------
Net increase (decrease) in cash and cash equivalents............................ 58,672,209 (85,909,661) 66,967,370
Cash and cash equivalents at beginning of year ................................. 8,372,976 94,282,637 27,315,267
--------- ---------- ----------
Cash and cash equivalents at end of year .......................................$ 67,045,185 $ 8,372,976 $94,282,637
============ =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.......................................................................$ 1,653,277 $ 1,419,883 $ 1,410,800
Income taxes...................................................................$ 483 $ 15,049 51,000
</TABLE>
Supplemental disclosure of investing and financing activities:
On July 31,1995, Capital Southwest Corporation distributed to its shareholders
752,147 shares of common stock of Palm Harbor Homes, Inc., which had a cost of
$137,534 and a fair market value of $12.50 pershare, or $9,401,838.
See Notes to Consolidated Financial Statements
<PAGE>
Capital Southwest Venture Corporation
(wholly-owned subsidiary of Capital Southwest Corporation)
Statement of Financial Condition
March 31,1996
Assets
Investments at market or fair value (Notes 1 and 2)
Companies more than 25% owned (Cost--$4,295,737) $48,322,862
Companies 5% to 25% owned (Cost--$3,814,816) 5,993,836
Companies less than 5% owned (Cost--$9,260,982) 24,430,173
----------
Total investments (Cost--$17,371,535) 78,746,871
Cash and cash equivalents 9,975,795
Interest and dividends receivable 103,282
Other assets 61,750
------
Total $88,887,698
===========
Liabilities and Shareholder's Equity
Accrued interest and other liabilities $ 340,218
Deferred income taxes (Note 3) 21,116,000
Subordinated debentures (Note 5) 11,000,000
-----------
Total liabilities 32,456,218
-----------
Shareholder's equity (Notes 3 and 5)
Common stock, $1 par value: authorized,
5,000,000 shares; issued and outstanding,
1,000,000 shares 1,000,000
Additional capital 15,606,949
Undistributed net investment income 731,662
Accumulated net realized loss on investments (816,467)
Unrealized appreciation of investments-
net of deferred income taxes 39,909,336
----------
Shareholder's equity 56,431,480
----------
Total $88,887,698
===========
See Notes to Consolidated Financial Statements
<PAGE>
Capital Southwest Venture Corporation
(wholly-owned subsidiary of Capital Southwest Corporation)
Statement of Operations
Year Ended March 31,1996
Investment income:
Interest.................................................. $1,465,974
Dividends................................................. 1,346,890
---------
2,812,864
---------
Operating expenses (Note 1):
Interest.................................................. 980,333
Management fee ........................................... 311,487
Miscellaneous ............................................ 12,340
------
1,304,160
---------
Net investment income (Note 3)..................................... $1,508,704
==========
Proceeds from disposition of investments .......................... $ 432,100
Cost of investments sold (Note 1) ................................. 1,221,267
---------
Realized loss on investments before income taxes................... (789,167)
Income tax benefit ................................................ (236,927)
--------
Net realized loss on investments .................................. (552,240)
Net increase in unrealized appreciation of investments before
distribution (net of increase in deferred income taxes of
$1,821,000) (Note 3) ............................................. 12,662,525
----------
Net realized and unrealized gain on investments....................$12,110,285
===========
Increase in shareholder's equity from operations...................$13,618,989
===========
Statement of Changes in Shareholder's Equity
<TABLE>
<CAPTION>
Years Ended March 31
1996 1995
---- ----
<S> <C> <C>
Net investment income .......................................................... $ 1,508,704 $ 784,699
Net realized gain (loss) on investments......................................... (552,240) 15,097
Net increase in unrealized appreciation of investments before distribution ..... 12,662,525 5,412,310
---------- ---------
Increase in shareholder's equity from operations before distribution ........... 13,618,989 6,212,106
Capital contribution by Capital Southwest Corporation .......................... 2,500,000 -
Distributions to Capital Southwest Corporation from:
Undistributed net investment income .......................................... (1,089,251) (718,146)
Accumulated net realized loss on investments.................................. (137,765) -
Unrealized appreciation of investments ....................................... (9,279,873) -
---------- -----------
Increase in shareholder'sequity ................................................ 5,612,100 5,493,960
Shareholder's equity, beginning of year ........................................ 50,819,380 45,325,420
---------- ----------
Shareholder's equity, end of year .............................................. $56,431,480 $50,819,380
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Capital Southwest Venture Corporation
(wholly-owned subsidiary of Capital Southwest Corporation)
Statement of Cash Flows
Year Ended March 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Increase in shareholder's equity from operations
before distribution $ . . . . . . . . . . . . . . . . . . . . . . $ 13,618,989
Adjustments to reconcile increase in shareholder's
equity from operations before distribution to net
cash provided by operating activities:
Net realized and unrealized gain on investments. . . . . . . . (12,110,285)
Decrease in interest and dividends receivable . . . . . . . . 77,982
Decrease in other assets. . . . . . . . . . . . . . . . . . . 20,041
Increase in accrued interest and other liabilities. . . . . . 22,698
-----------
Net cash provided by operating activities. . . . . . . . . . . . . 1,629,425
-----------
Cash flows from investing activities
Proceeds from disposition of investments. . . . . . . . . . . . . 432,100
Purchases of securities. . . . . . . . . . . . . . . . . . . . . (667,682)
Maturities of securities. . . . . . . . . . . . . . . . . . . . . 5,244,037
-----------
Net cash provided by investing activities. . . . . . . . . . . . . 5,008,455
-----------
Cash flows from financing activities
Dividend to Capital Southwest Corporation. . . . . . . . . . . . . (1,089,251)
-----------
Net increase in cash and cash equivalents. . . . . . . . . . . . . 5,548,629
Cash and cash equivalents at beginning of year. . . . . . . . . . 4,427,166
-----------
Cash and cash equivalents at end of year. . . . . . . . . . . . . $ 9,975,795
===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 959,251
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 155
</TABLE>
Supplemental disclosure of investing and financing activities:
On July 31,1995, Capital Southwest Venture Corporation distributed to Capital
Southwest Corporation 753,411 shares of common stock of Palm Harbor Homes. Inc.,
which had a cost of $ 137,765 and a fair market value of $ 12.50 per share, or
$9,417,638.
See Notes to Consolidated Financial Statements
21
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Capital Southwest Corporation (the"Company") is a business development
company subject to regulation under the Investment Company Act of 1940. Capital
Southwest Venture Corporation ("CSVC"), a wholly-owned subsidiary of the
Company, is a Federal licensee under the Small Business Investment Act of 1958.
The following is a summary of significant accounting policies followed in thr
preparation of the financial statements of the Company and CSVC:
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements, which
include the accounts of the Company and CSVC, have been prepared on the value
method of accounting in accordance with generally accepted accounting principles
for investment companies. All significant intercompany accounts and transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS. All temporary cash investments having a maturity
of three months or less when purchased are considered to be cash equivalents.
PORTFOLIO SECURITY VALUATIONS. Investments are stated at market or fair
value determined by the Board of Directors as described in the Notes to
Portfolio of Investments and Note 2 below. The average cost method is used in
determining cost of investments sold.
OPERATING EXPENSES. Expenses directly related to the activities of the
Company or CSVC have been charged directly as appropriate. General operating
expenses of the Company and CSVC are allocated between the companies based upon
the respective fair values of the portfolios of investments. Such allocation to
CSVC is recorded in its statement of operations as a management fee.
2. Valuation of Investments
The consolidated financial statements of the Company as of March 31, 1996
and 1995 include securities valued at $223,234,086 (87% of the value of the
consolidated investment portfolio) and $187,791,413 (93% of the value of the
consolidated investment portfolio), respectively, whose values have been
determined by the Board of Directors in the absence of readily ascertainable
market values. The Financial statements of Capital Southwest Venture Corporation
as of March 31, 1996 include $61,441,166 (78% of the value of its investment
portfolio) of such securities. Because of the inherent uncertainty of valuation,
these values may differ significantly from the values that would have been used
had a ready market for the securities existed, and the differences could be
material.
3. Income Taxes
Effective April 1,1993, the Company and CSVC adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No.109, "Accounting for Income Taxes". There was no cumulative effect
of the change in the method of accounting for income taxes as a result of
adopting Statement 109.
For the tax years ended December 31, 1995, 1994 and 1993, the Company and
CSVC qualified to be taxed as regulated investment companies ("RlCs") under
applicable provisions of the Internal Revenue Code. As RICs, the Company and
CSVC must distribute at least 90% of their taxable net investment income
(investment company taxable income) and may either distribute or retain their
taxable net realized gain on investments (capital gains). Both the Company and
CSVC intend to meet the applicable qualifications to be taxed as RICs in future
years; however, either company's ability to meet certain portfolio
diversification requirements of RlCs in future years may not be controllable by
such company.
No provision was made for Federal income taxes on the investment company
taxable income of the Company and CSVC for the 1996, 1995 and 1994 fiscal years.
Such income was distributed to shareholders in the form of cash dividends for
which the Company and CSVC receive a tax deduction. With respect to net
investment income, the tax provision for each of the three years ended March 31,
1996 includes a deferred tax provision related to the net pension benefit.
With respect to the net increase in unrealized appreciation of investments
before distributions of the Company and CSVC during fiscal 1996,the expected
increase in deferred income taxes on appreciation of investments at the Federal
statutory rate of 35% differs from the amounts reported in the financial
statements due to the distribution of appreciated securities with no associated
tax liability. With respect to the net increase in unrealized appreciation of
investments of the Company during fiscal 1994, the expected increase in deferred
income taxes on appreciation of investments at the Federal statutory rate of 35%
differs from the amounts reported in the financial statements due to an increase
in deferred income taxes of $1,140,000 arising from the increase in the Federal
statutory tax rate from 34% to 35% during the year.
The Company and CSVC may not qualify or elect to be taxed as RlCs in future
years. Therefore, consolidated deferred Federal income taxes of $69,121,000 and
$53,247,000 have been provided on net unrealized appreciation of investments of
$198,386,361 and $153,030,998 at March 31,1996 and 1995, respectively. For CSVC,
deferred Federal income taxes of $21,466,000 have been provided on net
unrealized appreciation of investments of $61,375,336 at March 31,1996. Such
appreciation is not included in taxable income until realized. Deferred income
taxes on net unrealized appreciation of investments have been provided at the
then currently effective maximum Federal corporate tax rate on capital gains of
35% at March 31, 1996 and 1995, respectively.
4. Notes Payable to Bank
The note payable to bank at March 31, 1996 is an unsecured note with
interest payable at 6.24%. The note was paid in fu11 on April 1,1996. The
Company also has an unsecured $15,000,000 revolving line of credit, all of which
was available at March 31, 1996. The revolving line of credit bears interest at
the bank's base rate less .50%, and matures on July 31,1997.
5. Subordinated Debentures
CSVC's subordinated debentures, payable to others and guaranteed by the
Sma11 Business Administration ("SBA"), are as follows:
March 31
-------------------------
1996 1995
----- -----
8.750%, due in 1996. . . . . . . . . . $ 6,000,000 $ 6,000,000
8.000%, due in 2002. . . . . . . . . . 5,000,000 5,000,000
----------- -----------
TOTAL. . . . . . . . . . . . . . . . . $11,000,000 $11,000,000
=========== ===========
SBA regulations prohibit any loans or advances by CSVC to the Company and
permit dividend payments only with the prior approval of the SBA.
6. Employee Stock Option Plan
Under the 1984 Incentive Stock Option Plan, options to purchase 90,000
shares at prices ranging from $23.25 to $39.1875 per share (the adjusted market
prices at the time of grant) were outstanding at March 31, 1996. 0ptions on
37,025 shares were exercisable at March 31, 1996. During the year ended March
31, 1996, options for 32,000 shares were exercised. Outstanding options expire
2000 through 2003. The 1984 Incentive Stock Option Plan expired in 1994 and no
options have been authorized or granted since that date.
At March 31, 1996 and 1995, the dilution of net assets per share arising
from options outstanding was not material.
7. Employee Stock Ownership Plan
The Company and one of its wholly-owned subsidiaries sponsor a qualified
employee stock ownership plan ("ESOP") in which certain employees participate.
Contributions to the plan, which are invested in Company stock, are made at the
discretion of the Company's Board of Directors. A participant's interest in
contributions to the ESOP fully vests after five years of active service. During
the three years ended March 31, the Company made contributions to the ESOF'
which were charged against net investment income, of $76,341 in 1996, $19,338 in
1995 and $13,844 in 1994.
8. Retirement Plan
The Company sponsors a defined benefit pension plan which covers
substantially all of its employees and employees of certain of its wholly-owned
subsidiaries. The following information about the plan only represents amounts
and information related to the Company's participation in the plan and is
presented as though the Company sponsored a single-employer plan. Benefits are
based on years of service and an average of the highest five consecutive years
of compensation during the last ten years of employment. The funding policy of
the plan is to contribute annual amounts that are currently deductible for tax
reporting purposes. No contribution was made to the plan during the three years
ended March 31,1996.
<PAGE>
Components of net pension benefit related to the qualified plan include the
following:
Years Ended March 31
-------------------------------------
1996 1995 1994
-------- -------- --------
Service cost--benefits earned
during the year. . . . . . . . . . $ 42,184 $ 36,661 $ 35,559
Interest cost on projected benefit
obligation . . . . . . . . . . . . 165,906 148,318 154,556
Actual return on assets . . . . . . (1,421,745) (94,881) (411,876)
Net amortization and deferral. . . 873,696 (469,483) (133,130)
---------- ----------- ---------
Net pension expense (benefit) from
qualified plan. . . . . . . . . . $ (339,959) $ (379,385) $ (354,891)
========== =========== ==========
22
<PAGE>
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated statements of financial condition:
March 31
----------------------
1996 1995
------ ------
Actuarial present value of benefit
obligations: Accumulated benefit obligation,
including vested benefits of $2,002,992 in
1996 and $1,813,673 in 1995. . . . . . . . . $(2,056,275) $(1,861,920)
=========== ===========
Projected benefit obligation for service
rendered to date. . . . . . . . . . . . . . $(2,289,114) $(2,047,431)
Plan assets at fair value*. . . . . . . . . 6,927,656 5,574,997
----------- -----------
Excess of plan assets over the projected
benefit obligation. . . . . . . . . . . . 4,638,542 3,527,566
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions . . . . . . . . . . (1,418,507) (570,380)
Prior service costs not yet recognized. . . (42,998) (46,277)
Unrecognized net assets being amortized
over 19 years. . . . . . . . . . . . . . . (664,463) (738,294)
----------- -----------
Prepaid pension cost included in
other assets. . . . . . . . . . . . . . . $ 2,512,574 $2,172,615
=========== ===========
*Primarily equities and bonds including approximately 29,200 shares of common
stock of the Company.
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.75% and 5.25%, respectively, at March 31,
1996, 8.0% and 5.5%, respectively, at March 31, 1995 and 7.5% and 5.0%,
respectively, at March 31, 1994. The expected long-term rate of return used to
project estimated earnings on plan assets was 8.5% for the years ended March 31,
1996, 1995 and 1994. The calculations also assume retirement at age 65, the
normal retirement age.
The Company also sponsors an unfunded Retirement Restoration Plan, which is
a nonqualified plan that provides for the payment, upon retirement,of the
difference between the maximum annual payment permissible under the qualified
retirement plan pursuant to Federal limitations and the amount which would
otherwise have been payable under the qualified plan.
The following table sets forth the status of the plan and the amounts
recognized in the Company's consolidated statements of financial condition:
March 31
--------------------
1996 1995
------ ------
Projected benefit obligation. . . . . $(1,465,570) $(1,484,811)
Unrecognized net loss from past
experience different from that
assumed and effects of changes
in assumptions. . . . . . . . . . . . 91,477 222,143
Unrecognized net obligation. . . . . . 99,155 118,988
----------- ------------
Accrued pension cost included
in other liabilities. . . . . . . . . $(1,274,938) $(1,143,680)
============ ============
The expenses recognized during the years ended March 31, 1996, 1995 and
1994 of $131,258, $137,955 and $115,359, respectively, are offset against the
net pension benefit from the qualified plan.
23
<PAGE>
9. Sources of Income
Income was derived from the following sources:
Investment Income Realized Gain
------------------ (Loss) on
Years Ended Investments
March 31 Other Before Income
1996 Interest Dividends Income Taxes
- ----------- -------- --------- ------ -----
Companies more than
25%owned $ 755,146 $3,101,219 $545,200 $ -
Companies 5% to 25%
owned 2,730 - 16,750 17,954,600
Companies less than
5% owned 568,915 495,785 - (1,423,360)
Other sources,
including temporary
investments 691,517 - - -
------------------------------------------------------
$2,018,308 $3,597,004 $561,950 $16,531,240
======================================================
1995
- -----
Companies more than
25% owned $ 661,252 $2,269,312 $501,500 $ -
Companies 5% to 25%
owned 2,083 - 22,250 774,943
Companies less than
5% owned 618,073 360,072 - (408,506)
Other sources,
including temporary
investments 671,149 - - (147,355)
------------------------------------------------------
$1,952,557 $2,629,384 $523,750 $ 219,082
======================================================
1994
- ----
Companies more than
25% owned $ 750,541 $2,411,290 $493,500 $ -
Companies 5% to 25%
owned 526 - 4,500 (815,964)
Companies less than
5% owmed 566,208 498,099 - 144,943
Other sources,
including temporary
investments 779,071 - - -
------------------------------------------------------
$2,096,346 $2,909,389 $498,000 $ (671,021)
======================================================
10. Summarized Financial Information of Unconsolidated Subsidiaries
The Company has three significant wholly-owned subsidiaries--The RectorSeal
Corporation, The Whitmore Manufacturing Company and Skylawn Corporation--which
are neither investment companies nor business development companies.
Accordingly, the accounts of such subsidiaries are not included with those of
the Company. Summarized combined financial information of the three subsidiaries
is as follows:
(all figures in thousands)
March 31
1996 1995
---- ----
Condensed Balance Sheet Data
Assets
Cash and temporary investments $11,444 $14,638
Receivables 20,517 18,748
Inventories 30,907 25,150
Property, plant and equipment 15,910 14,745
Other assets 12,713 11,953
------ ------
Totals $91,491 $85,234
======= =======
<PAGE>
Liabilities and Shareholder's Equity
Long-term debt $ 2,092 $ 2,505
Other liabilities 10,533 9,427
Shareholder's equity 78,866 73,302
------ ------
Totals $91,491 $85,234
======= =======
Condensed Statements of Income 1996 1995 1994
---- ---- ----
Revenues $69,058 $63,987 $59,198
Costs and operating expenses $60,050 $56,373 $50,812
Net income $ 6,865 $ 6,186 $ 6,664
11. Commitments and Contingencies
The Company leases office space under an operating lease which requires
base annual rentals of $42,700 through February 1998 and provides one five-year
renewal option subject to certain rental escalations. For the three years ended
March 31, total rental expense charged to investment income was $43,449 in 1996,
$42,754 in 1995 and $42,275 in 1994.
<PAGE>
Selected Per Share Data and Ratios
<TABLE>
<CAPTION>
Years Ended March 31
--------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment income................................ $ 1.64 $ 1.37 $ 1.48 $ 1.34 $ 1.35
Operating expenses............................... (.41) (.32) (.30) (.37) (.31)
Interest expense................................. (.45) (.37) (.39) (.37) (.39)
Income taxes..................................... (.02) (.01) (.02) (.01) -
---- ---- ---- ---- ----
Net investment income ........................... .76 .67 .77 .59 .65
Distributions from undistributed net
investment income.............................. (.60) (.60) (.60) (.60) (.60)
Net realized gain(loss) on investments........... 2.97 .04 (.13) 1.39 3.93
Distributions from undistributed net
realized gain on investments................... (.04) - - - -
Net increase (decrease) in unrealized
appreciation of investments before
distributions.................................. 10.28 3.64 3.00 2.32 (1.25)
Distributions from unrealized appreciation
of investments................................. (2.46) - - - -
Exercise of employee stock options*.............. (.19) (.10) (.22) (.22) (.08)
---- ---- ---- ---- ----
Increase in net asset value...................... 10.72 3.65 2.82 3.48 2.65
Net asset value:
Beginning of year....................... 39.46 35.81 32.99 29.51 26.86
----- ----- ----- ----- -----
End of year ............................ $50.18 $39.46 $35.81 $32.99 $29.51
====== ====== ====== ====== ======
Ratio of operating expenses to average
net assets..................................... .9% .9% .9% 1.2% 1.1%
Ratio of net investment income to average
net assets..................................... 1.7% 1.8% 2.3% 1.9% 2.3%
Portfolio turnover rate.......................... 4.5% 1.3% 1.3% 5.2% 6.5%
Shares outstanding at end of period
(000s omitted)................................. 3,767 3,735 3,715 3,681 3,644
</TABLE>
* Net decrease is due to exercise of employee stock options at less than
beginning of period net asset value.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
of Capital Southwest Corporation:
We have audited the accompanying: (a) consolidated statements of financial
condition of Capital Southwest Corporation and subsidiary as of March 31, 1996
and 1995, the portfolio of investments as of March 31, 1996, the related
consolidated statements of operations, changes in net assets and cash flows for
each of the years in the three-year period ended March 31, 1996 and the selected
per share data and ratios for each of the years in the four-year period ended
March 31,1996; (b) statement of financial condition of Capital Southwest Venture
Corporation as of March 31, 1996, and the related statements of operations and
cash flows for the year then ended and the statements of changes in
shareholder's equity for each of the years in the two-year period ended March
31,1996. These financial statements and per share data and ratios are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and per share data and ratios based on our
audits. Capital Southwest Corporation and subsidiary selected per share data and
ratios for the year ended March 31, 1992 was audited by other auditors whose
report thereon dated May 1, 1992 expressed an unqualified opinion on the
selected per share data and ratios.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of March
31 1996 and 1995, by examination of such securities held by the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion (a) the consolidated financial statements and selected per
share data and ratios referred to above present fairly, in all material
respects, the financial position of Capital Southwest Corporation and subsidiary
as of March 31, 1996 and 1995, and the results of their operations, the changes
in their net assets, their cash flows for each of the years in the three-year
period ended March 31, 1996 and the selected per share data and ratios for each
of the years in the four-year period ended March 31, 1996; and (b) the financial
statements referred to above present fairly, in all material respects, the
financial position of Capital Southwest Venture Corporation as of March 31,1996,
and the results of its operations and its cash flows for the year then ended and
the changes in its shareholder's equity for each of the years in the two-year
period ended March 31,1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
April 19,1996
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The composite measure of the Company's financial performance in the
Consolidated Statements of Operations is captioned "Increase in net assets from
operations before distributions" and consists of three elements. The first is "
Net investment income", which is the difference between the Company's income
from interest, dividends and fees and its combined operating and interest
expenses, net of applicable income taxes. The second element is "Net realized
gain (loss) on investments", which is the difference between the proceeds
received from disposition of portfolio securities and their stated cost, net of
applicable income tax expense (or benefit). The third element is the "Net
increase in unrealized appreciation of investments before distributions", which
is the net change in the market or fair value of the Company's investment
portfolio, compared with stated cost, net of an increase or decrease in deferred
income taxes which would become payable if the unrealized appreciation were
realized through the sale or other disposition of the investment portfolio. It
should be noted that the "Net realized gain (loss) on investments" and "Net
increase in unrealized appreciation of investments before distributions" are
directly related in that when an appreciated portfolio security is sold to
realize a gain, a corresponding decrease in net unrealized appreciation occurs
by transferring the gain associated with the transaction from being "unrealized"
to being "realized " Conversely, when a loss is realized on a depreciated
portfolio security, an increase in net unrealized appreciation occurs.
Net Investment Income
The Company's principal objective is to achieve capital appreciation.
Therefore, a significant portion of the investment portfolio is structured to
maximize the potential return from equity participation and provides minimal
current yield in the form of interest or dividends. The Company also earns
interest income from the short-term investment of cash funds, and the annual
amount of such income varies based upon the average level of funds invested
during the year and fluctuations in short-term interest rates. During the three
years ended March 31, the Company had interest income from temporary cash
investments of $687,000 in 1996, $667,000 in 1995 and $779,000 in 1994. The
Company also receives management fees from its wholly-owned subsidiaries which
aggregated $523,200 in the year ended March 31,1996 and $480,000 in the years
ended March 31,1995 and 1994. During the three years ended March 31, 1996, the
Company recorded dividend income from the following sources:
Years Ended March 31
--------------------
1996 1995 1994
---- ---- ----
Alamo Group Inc.................... $1,064,000 $ 984,200 $ 877,800
Cherokee Communications, Inc....... 144,000 180,000 144,000
Humac Company ..................... 208,200 - -
The RectorSeal Corporation ........ 1,529,019 1,285,112 1,533,490
Skylawn Corporation ............... 300,000 - -
Texas Shredder, Inc................ 178,125 - -
Other ............................. 173,660 180,072 354,099
------- ------- -------
$3,597,004 $2,629,384 $2,909,389
========== ========== ==========
Total operating expenses, excluding interest expense, increased by $333,526
and $112,132 or 27.5% and 10.2% during the years ended March 31, 1996 and 1995,
respectively. Due to the nature of its business, the majority of the Company's
operating expenses are related to employee and director compensation, office
expenses, legal and accounting fees and the net pension benefit. Interest
expense, the majority of which is related to the SBA- guaranteed subordinated
debentures of CSVC, increased by $305,737 and decreased by $50,343 during the
years ended March 31, 1996 and 1995, respectively.
Net Realized Gain or Loss on Investments
Net realized gain on investments was $11,174,025 (after income tax expense
of $5,357,215) during the year ended March 31, 1996, compared with a gain of
$142,403 (after income tax expense of $76,679) during 1995 and a loss of
$474,603 (after income tax benefit of $196,418) during 1994. Management does not
attempt to maintain a comparable level of realized gains from year to year, but
instead attempts to maximize total investment portfolio appreciation. This
strategy often dictates the long-term holding of portfolio securities in pursuit
of increased values and increased unrealized appreciation, but may at opportune
times dictate realizing gains through the disposition of certain portfolio
investments.
<PAGE>
Net Increase in Unrealized Appreciation of Investments
For the three years ended March 31, the Company recorded an increase in
unrealized appreciation of investments before income taxes and distributions of
$54,619,668, $20,898,731 and $18,979,514 in 1996, 1995 and 1994, respectively.
As explained in the first paragraph of this discussion and analysis, the
realization of gains or losses results in a corresponding decrease or increase
in unrealized appreciation of investments. Set forth in the following table are
the significant increases and decreases in unrealized appreciation (before the
related change in deferred income taxes and distributions and excluding the
effect of gains or losses realized during the year) by portfolio company for
securities held at the end of each year.
Years Ended March 31
--------------------
1996 1995 1994
---- ---- ----
Alamo Group Inc. .................$ 3,652,000 $ 103,000 $ 7,766,500
American Homestar Corporation .... 3,834,276 921,434 -
Cherokee Communications, Inc...... 1,000,000 1,600,000 -
Data Race, Inc.................... (1,905,300) 920,600 (5,805,000)
Dennis Tool Company .............. (500,000) - 1,370,000
Encore Wire Corporation .......... (5,812,000) 358,250 3,094,250
LiL'Things, Inc................... (2,155,222) - -
Mail-Well, Inc.................... 1,246,990 - -
Mylan Laboratories, Inc........... (21,381) 1,218,717 (983,526)
Palm Harbor Homes, Inc............ 39,931,777 14,096,600 8,201,600
PETsMART, Inc..................... 7,059,004 1,639,320 -
The RectorSeal Corporation ....... 3,000,000 5,300,000 3,500,000
Skylawn Corporation .............. 5,000,000 (7,000,000) -
Tecnol Medical Products, Inc...... (275,646) 1,017,758 (216,819)
Texas Shredder, Inc............... 1,175,000 749,998 (375,000)
The Whitmore Manufacturing
Company .......................... (1,200,000) (400,000) -
A description of the investments listed above and other material components
of the investment portfolio is included elsewhere in this report under the
caption "Portfolio of Investments- March 31, 1996"
Deferred Taxes on Unrealized Appreciation of Investments
The Company provides for deferred Federal income taxes on net unrealized
appreciation of investments. Such taxes would become payable at such time as
unrealized appreciation is realized through the sale or other disposition of
those components of the investment portfolio which would result in taxable
transactions. At March 31, 1996, consolidated deferred Federal income taxes of
$69,121,000 were provided on net unrealized appreciation of investments of
$198,386,361 compared with deferred taxes of $53,247,000 on net unrealized
appreciation of $153,030,998 at March 31, 1995. Deferred income taxes at March
31, 1996 and 1995 were provided at the then currently effective maximum Federal
corporate tax rate on capital gains of 35%.
Portfolio Investments
During the year ended March 31, 1996, the Company invested $19,406,816 in
various portfolio securities listed elsewhere in this report under the caption
"Portfolio Changes During the Year," which also iists dispositions of portfolio
securities. During the 1995 and 1994 fiscal years, the Company invested a total
of $9,556,876 and $10,679,997, respectively.
Financial Liquidity and Capital Resources
At March 31, 1996, the Company and CSVC had consolidated net cash
equivalent assets (cash and cash equivalents less the note payable to bank) of
$17.0 million, $10.0 million of which was held by CSVC. Pursuant to Small
Business Administration ("SBA") regulations, net cash equivalent assets held by
CSVC may not be transferred or advanced to the Company without first obtaining
the consent of the SBA.
The Company, on a separate basis, had $7.0 million in net cash equivalent
assets at March 31, 1996. The Company also has an unsecured $15,000,000
revolving line of credit, all of which was available at March 31, 1996.
Approximately $16.4 million of the Company's separate investment portfolio is
represented by unrestricted publicly-traded securities, which have an
ascertainable market value and represent a primary source of liquidity.
Funds to be used by the Company for operating or investment purposes may be
transferred in the form of dividends, management fees or loans from Skylawn
Corporation, The RectorSeal Corporation and The Whitmore Manufacturing Company,
wholly-owned subsidiaries of the Company, to the extent of their available cash
reserves and borrowing capacities.
Under current SBA regulations and subject to SBA's approval of its credit
application, CSVC would be entitled to borrow up to $34.5 million in addition to
the $11 million presently outstanding. Management believes that the net cash
equivalent assets available at year end and additional borrowing capacity
available through the issuance of SBA-guaranteed debentures will provide
adequate funds for CSVC's venture investment activities.
Management believes that the Company's consolidated net cash equivalent
assets are adequate to meet its expected requirements. Consistent with the long-
term strategy of the Company and CSVC, the disposition of investments from time
to time may also be an important source of funds for future investment
activities.
Impact of Inflation
The Company does not believe that its business is materially affected by
inflation, other than the impact which inflation may have on the securities
markets, the valuations of business enterprises and the relationship of such
valuations to underlying earnings, all of which will influence the value of the
Company's investments.
Risks
Pursuant to Section 64(b)(1) of the Investment Company Act of l940, a
business development company is required to describe the risk factors involved
in an investment in the securities of such company due to the nature of the
company's investment portfolio. Accordingly the Company states that:
The Company's objective is to achieve capital appreciation through
investments in businesses believed to have favorable growth potential. Such
businesses are often undercapitalized small companies which lack management
depth and have not yet attained profitability. The Company's venture investments
often include securities which do not yield interest or dividends and are
subject to legal or contractual restrictions on resale, which restrictions
adversely affect the liquidity and marketability of such securities.
Because of the speculative nature of the Company's investments and the lack
of any market for the securities initially purchased by the Company, there is a
significantly greater risk of loss than is the case with traditional investment
securities. The high-risk, long-term nature of the Company's venture investment
activities may prevent shareholders of the Company from achieving price
appreciation and dividend distributions.
Selected Consolidated Financial Data
(all figures in thousands except per share data)
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Financial Position (as of March 31)
Investments at cost $ 24,O33 $ 21,241 $ 28,478 $ 29,665 $ 32,212
Unrealized appreciation 45,930 65,290 89,512 97,134 99,903
------ ------ ------ ------ ------
Investments at market or
fair value 69,963 86,531 117,990 126,799 132,115
Total assets 74,211 137,520 183,941 131,365 185,231
Subordinated debentures 10,000 16,000 15,000 15,000 15,000
Deferred taxes on
unrealized appreciation 12,581 21,837* 30,073 32,619 33,608
Net assets 51,048 66,367* 78,376 83,124 94,610
Shares outstanding** 3,955 3,776 3,563 3,563 3,617
Changes in Net Assets (years ended March 31)
Net investment income $ 87 $ 45 $ 22 $ 716 $ 1,737
Net realized gain (loss) on
investments (190) 8,157 497 27 12,722
Net increase (decrease) in
unrealized appreciation
before distributions 7,764 10,105* 15,986 5,075 1,780
----- ------ ------ ----- -----
Increase in net assets
from operations before
distributions 7,661 18,307* 16,505 5,818 16,239
Cash dividends paid (316) (425) (378) (1,069) (5,197)
Securities dividends - - - - -
Treasury stock acquired - (2,563) (4,118) - -
Employee stock options
exercised - - - - 444
----- ------- ------ ----- ------
Increase in net assets 7,345 15,319* 12,009 4,749 11,486
Per Share Data (as of March 31)**
Deferred taxes on
unrealized appreciation $ 3.18 $ 5.78* $ 8.44 $ 9.15 $ 9.29
Net assets 12.91 17.58* 22.00 23.33 26.16
% Increase 16.8% 36.2% 25.1% 6.0% 12.1%
Closing market price 9.875 17.50 16.75 18.25 21.375
Cash dividends paid 0.08 0.1075 0.10 0.30 1.44
Securities dividends - - - - -
</TABLE>
Selected Consolidated Financial Data
(all figures in thousands except per share data)
(continued)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Financial Position (as of March 31)
Investments at cost $ 31,593 $ 34,929 $ 33,953 $ 41,993 $ 49,730 $ 58,544
Unrealized appreciation 107,120 100,277 113,153 132,212 153,031 198,386
------- ------- ------- ------- ------- -------
Investments at market or
fair value 138,713 135,206 147,106 174,205 202,761 256,930
Total assets 149,975 208,871 176,422 270,874 213,811 326,972
Subordinated debentures 15,000 11,000 15,000 15,000 11,000 11,000
Deferred taxes on
unrealized appreciation 36,063 33,761 38,112 45,932 53,247 69,121
Net assets 97,139 107,522 121,455 133,053 147,370 189,048
Shares outstanding** 3,617 3,644 3,681 3,715 3,735 3,767
Changes in Net Assets (years ended March 31)
Net investment income $ 2,090 $ 2,363 $ 2,189 $ 2,870 $ 2,447 $ 2,855
Net realized gain (loss) on
investments (2,515) 14,313 5,099 (475) 142 11,174
Net increase (decrease) in
unrealized appreciation
before distributions 4,762 (4,541) 8,524 11,160 13,584 38,746
----- ------ ----- ------ ------ ------
Increase in net assets
from operations before
distributions 4,337 12,135 15,812 13,555 16,173 52,775
Cash dividends paid (1,809) (2,181) (2,202) (2,228) (2,241) (2,270)
Securities dividends - - - - - (9,402)
Treasury stock acquired - - - - - -
Employee stock options
exercised - 429 322 272 385 575
----- ------- ------ ----- ------ -----
Increase in net assets 2,528 10,383 13,932 11,599 14,317 41,678
Per Share Data (as of March 31)**
Deferred taxes on
unrealized appreciation $ 9.97 $ 9.27 $ 10.35 $ 12.36 $ 14.26 $ 18.35
Net assets 26.86 29.51 32.99 35.81 39.46 50.18
% Increase 2.7% 9.9% 11.8% 8.5% 10.2% 27.2%
Closing market price 20.75 24.25 36.50 38.125 38.00 60.00
Cash dividends paid 0.50 0.60 0.60 0.60 0.60 0.60
Securities dividends - - - - - 2.50
</TABLE>
* Restated on a pro forma basis to reflect a change in method of accounting
for deferred income taxes.
** Shares outstanding and per share amounts have been restated to give effect
to a two-for-one stock split in September 1987.
<PAGE>
Shareholder Information
Stock Transfer Agent
KeyCorp Shareholder Services, Inc., 1201 Elm Street, Suite 5050, Dallas, TX
75270-2014 (Telephone (800) 527-7844) serves as transfer agent for the Company's
common stock. Certificates to be transferred should be mailed directly to the
transfer agent, preferably by registered mail.
Shareholders
The Company had approximately 880 record holders of its common stock at
March 31, 1996. This total does not include an estimated 1,400 shareholders with
shares held under beneficial ownership in nominee name or within clearinghouse
positions of brokerage firms or banks.
Market Prices
The common stock of Capital Southwest Corporation is traded in the
over-the-counter market through the National Association of Securities Dealers
Automated Quotation ("Nasdaq") National Market System under the symbol CSWC. The
following high and low selling prices for the shares during each quarter of the
last two fiscal years were taken from quotations provided to the Company by the
National Association of Securities Dealers, Inc.
Quarter Ended High Low
- ------------- ---- ---
June 30, 1994 ........... $40 $37 3/4
September 30, 1994....... 40 3/4 39
December 31, 1994 ....... 39 1/2 34
March 31, 1995 .......... 38 3/4 36
Quarter Ended High Low
- ------------- ---- ---
June 30, 1995 ........... $45 $37 3/4
September 30, 1995....... 45 3/4 41 1/2
December 31, 1995 ....... 51 1/2 44 1/4
March 31, 1996 .......... 60 50 1/2
Dividends
The payment dates and amounts of cash dividends per share since April 1,
1994, are as follows:
Payment Date Cash Dividend
- ------------ -------------
May 31, 1994 ........... $0.20
November 30, 1994 ...... 0.40
May 31, 1995 ........... 0.20
Novembe 30, 1995 ....... 0.40
May 31, 1996 ........... 0.20
The amounts and timing of cash dividend payments have generally been
dictated by requirements of the Internal Revenue Code regarding the distribution
of taxable net investment income of regulated investment companies.
A dividend of one share of Palm Harbor Homes, Inc. common stock for each
five shares of Capital Southwest common stock was paid on July 31, 1995. Cash
payments were made in lieu of Palm Harbor stock to record holders of fewer than
50 shares of Capital Southwest and in lieu of fractional shares.
Automatic Dividend Reinvestment and Optional Cash Contribution Plan
As a service to its shareholders, the Company offers an Automatic Dividend
Reinvestment and Optional Cash Contribution Plan for shareholders of record who
own a minimum of 25 shares. The Company pays all costs of administration of the
Plan except brokerage transaction fees. Upon request, shareholders may obtain
information on the Plan from the Company, 12900 Preston Road, Suite 700, Dallas,
Texas 75230. Telephone (214) 233-8242.
Annual Meeting
The Annual Meeting of Shareholders of Capital Southwest Corporation will be
held on Monday, July 15,1996, at 10:00 a.m. in the North Dallas Bank Tower
Meeting Room (first floor), 12900 Preston Road, Dallas, Texas.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Capital Southwest Corporation:
We consent to incorporation by reference in the registration statement (No.
33-43881) on Form S-8 of Capital Southwest Corporation of our report dated April
19, 1996, relating to the consolidated statements of financial condition of
Capital Southwest Corporation and subsidiary as of March 31, 1996 and 1995, the
portfolio of investments as of March 31, 1996, and the related consolidated
statements of operations, changes in net assets and cash flows for each of the
years in the three-year period ended March 31, 1996 and the selected per share
data and ratios for each of the years in the four-year period ended March 31,
1996, which report appears in the annual report to shareholders for the year
ended March 31, 1996 and is incorporated by reference in the annual report on
Form 10-K of Capital Southwest Corporation.
KPMG Peat Marwick L.L.P.
-------------------------
Dallas, Texas
June 21, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at March 31, 1996 and the
Consolidated Statement of Operations for the year ended March 31, 1996 and is
qualified in its entirety by refernece to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 58,544,100
<INVESTMENTS-AT-VALUE> 256,930,461
<RECEIVABLES> 285,002
<ASSETS-OTHER> 2,711,802
<OTHER-ITEMS-ASSETS> 67,045,185
<TOTAL-ASSETS> 326,972,450
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 11,000,000
<OTHER-ITEMS-LIABILITIES> 126,924,697
<TOTAL-LIABILITIES> 137,924,697
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,017,537
<SHARES-COMMON-STOCK> 3,767,051
<SHARES-COMMON-PRIOR> 3,735,051
<ACCUMULATED-NII-CURRENT> 4,490,374
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 53,307,782
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 129,265,362
<NET-ASSETS> 189,047,753
<DIVIDEND-INCOME> 3,597,004
<INTEREST-INCOME> 2,018,308
<OTHER-INCOME> 561,950
<EXPENSES-NET> 3,246,897
<NET-INVESTMENT-INCOME> 2,854,917
<REALIZED-GAINS-CURRENT> 11,174,025
<APPREC-INCREASE-CURRENT> 38,745,668
<NET-CHANGE-FROM-OPS> 52,774,610
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,253,831
<DISTRIBUTIONS-OF-GAINS> 153,376
<DISTRIBUTIONS-OTHER> 9,264,304
<NUMBER-OF-SHARES-SOLD> 32,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 41,667,849
<ACCUMULATED-NII-PRIOR> 3,889,288
<ACCUMULATED-GAINS-PRIOR> 42,287,133
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 1,700,003
<GROSS-EXPENSE> 3,246,897
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 39.46
<PER-SHARE-NII> .76
<PER-SHARE-GAIN-APPREC> 13.25
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> (2.46)
<PER-SHARE-NAV-END> 50.18
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
